Many a bright idea never saw the light of day, due to lack of small business finance options. Do not let that happen to you. There are several ways you can raise money – choosing what works best for you is all-important. Check out the most popular small business finance options, and how you can improve your chances of getting that capital.
Bring your own: Personal resources form a very important part of your financing options. Even if you plan to take a bank loan, you’ll need to have invested some of your own funds in the business. Banks and other lenders like to see some kind of financial commitment from the principal owners of the business before they dive in.
Ask family and friends: Here’s your chance to call in those favors. People you know well are more likely to buy-in quickly and might even lend on easier terms. Don’t shy away from asking them, but treat them with the same care you would any other source of money. This means sharing your business plan and putting your agreement on paper.
Get a bank loan: Banks and credit unions are the obvious choice when you need a large amount of funding. Many governments have institutions that offer small business finance. Financing is also provided by banks and other private institutions. In order to qualify for the loan, you must demonstrate that your business can generate sufficient cash flow to pay it back. Your (and other principal owners’) financial track record will definitely be under scrutiny before they dole out the stuff.
You might also like to consider a Small Business Investment Company. They tend to have easier requirements of collateral and provide small business finance even at a slightly higher risk. Most investment companies focus on smaller, short term loans, and maybe just what an aspiring entrepreneur needs.
Rope in those investors: This might hurt a bit, but you should still consider talking to angel investors or venture capital firms. For one, their focus is on small businesses, and more importantly, it’s also their area of expertise. Such investors are happy to take on higher business risk in return for high returns (and a seat on the board!) and also provide strategic inputs to help grow the business.
Assuming that you need to go to a bank, what can you do to make the process less painful? Your loan proposal will make or break your quest for small business finance.
This checklist will help your chances of success:
Write a crisp introduction: Don’t waffle. Say how much you need, and how you will use it. Also, tell them upfront who the driving force behind the business is.
Talk about your business: Share details of size, structure and business assets. It’s got to look solid.
Tell them who’s who: It’ll help your case immensely if you include a short statement on the credentials of all the principal owners of your business. Hopefully, they all have unblemished personal credit ratings!
Talk about the market: A large market opportunity makes a compelling business argument. Clearly specify how you’ll go about fulfilling your customers’ needs.
Show them the money: Be sure to present a detailed statement projecting future financial performance. Let them know how and when the business will be able to repay. Remember, nothing succeeds like success.
There are lots of resources on the internet that can help your chances of getting finance. Make sure you research them.