Business loans are a dime a dozen and for each varying type of finance available to small businesses, there are varying requirements as well. Many small businesses cannot see the light of day if not for financial assistance from a third party and fortunately due to the worldwide effort to boost job creation and encourage entrepreneurship, finance for small business ventures are readily available and accessible from various sources.
As an up-and-coming business owner however, you will need to investigate your specific business requirements before making any kind of decision on finance
. Think about the following:
- What do you need to get your business going?
- How much will this cost you?
- What amount will you be able to cover in your own capacity?
- Do you need a business loan for the full amount?
- Does your workable budget allow for loan repayments? Remember to consider interest rates when working this out.
Once you’ve analysed your needs, you can then go on to consider the various options you have with regard to business loans. Your options will include bridging finance, asset finance, revolving credit, venture capital or a term loan.
How To Secure A Loan
Requirements for loans vary upon the type of loan you are requesting. Consider the following:
- Venture capital: Requirements depend largely upon the investor in these instances. Most commonly, business owners are required to provide a good business plan, full financial projections and forecast as well as stakes that make the investment worthwhile. These will include things like shares in the business and profit percentage.
- Term loan: A small business loan requires the presentation of a good business plan that outlines the nature of your business, how much funding you need, what you intend using the funding for as well as financial forecasts and projections. You will most likely be requested to provide some kind of collateral against the loan amount to act as security for the lender.
- Revolving credit: This type of loan works by means of borrowing a certain amount of money and then having that same amount available to you once you’ve repaid the initial loan. Lenders in these instances most commonly ask for in depth financial statements, projections and evidence of cash flow on a regular basis.
When it comes to business finance, you should be prepared to fulfil basic requirements like having a business plan in place, clear credit record and good credit rating, collateral and the means to prove affordability. This can be achieved through presenting financial statements and performance records of your business, whether actual or projected.
Finding A Loan
You can get finance for your business from a bank, financial institution, venture capitalists, private lenders or government programs that encourage and support entrepreneurship.
Use online resources or networking to make contact with a provider you feel suits your business requirements best and then work from there. Consider things like repayment options and interest rates when making your decision. Keep in mind that business loans often seem like an uphill battle but if you have your ducks in a row, you could have your business running at full steam in no time.
Funding For Small Business Demystified
Funding for small businessis an area that makes entrepreneurship possible in every sense. There are very few businesses that can boast start-up success without having the support of some kind of financial assistance from an external source in the beginning
Funding can come from various places depending on the type of loan you require:
Small Business Start Up Funding
- Personal: Friends and family borrow you money to cover costs of equipment, supplies and the like.
- Government: There are many government supported programs that encourage small business growth and have different types of funding available to different types of businesses.
- Banks: Basically every bank has some kind of focus on encouraging entrepreneurship by giving access to loans for new businesses.
- Investors: This is more an investment than a loan. People give you the money you need to get going in return for equity and profits. There are some instances where you can provide conditions and perhaps offer a stakeholder position for a limited time like no more than five or ten years. After which the business will belong entirely to you once again. You can also keep stakeholders out of the general decision-making process and running of the business, whereby they are seen solely as financial investors and have no say about how the business is run.
How Small Business Funding Works
Funding for small business works much the same as any other loan when it comes to the application process. There are a few steps you have to adhere to in order to be successful, namely:
- Providing a good business plan. Whether you approach a bank, friends or family, investors or the government you will be required to show why, how, where and what makes your business a venture worth supporting. In your business plan you must outline things like projected income and expenditure over a period of at least three years, how much money you require and what you will be spending that money on.
- Some lenders will need to have collateral before approving your loan. This can come in the way of any large asset that is worth the amount you are asking for like a car or house.
- A good credit record is imperative when applying for a loan. If you don’t have one, sometimes a lender will consider your application if you have someone with a good credit rating to co-sign with you.
Once you’ve successfully completed the application process, the money will usually be deposited into your business account within a matter of a few working days. It is important that you use this funding as you stated in your application if you want to give your business the best chance at success.
Most start-up businesses don’t make it past the second year of operation due to the misuse of funds. It is therefore a good idea to have a professional accountant or financial advisor that you can turn to for advice during this process. You will then be in the best position to make the funding for small business work for you and your new company.
Business Finance And Entrepreneurship
Business financeis no longer limited to funds procured from a bank or other financial institution. With the rise of entrepreneurship and the global response to encouraging growth in this area, there are now many other options available to those looking to start a small business. These options include the following
- Venture capital: This is where investors and entrepreneurs come together for a common goal, namely profits. Venture capitalists make their money by investing in many different businesses. That is why this relationship will only work if you can prove the future profitability of your business to the investor.
- Personal loan: Friends and family often form the crux of funding for small business ventures. These loans are great in that they usually have the lowest interest rates and best repayment options.
- Small business loan: You can get a small business loan from a bank or government program focusing on growing entrepreneurship. You must have a good business plan, clear credit rating and most often some kind of collateral as well.
- Credit cards: Business finance in smaller amounts can be dealt with by simply using your credit card. The plus side to this option is that you don’t have to jump through any hoops or make any kind of commitments. The negative side is that you will have to pay high interest rates in return.
- Online funding: There are quite a few websites that connect investors and entrepreneurs. You register with the site and list your business idea along with other important information like financial forecasts. You will then be put into contact with relevant investors who are interested in helping you get your project off the ground.
The Beauty Of Investment Funding
Many people who are on the brink of starting their business are quite weary about opening up their company to outside investors. They tend to feel that they would be sharing something that should be entirely theirs and perhaps don’t want outside input to the way they do things.
Venture capital doesn’t have to work this way though as there are a few options for business owners considering this option:
- You can offer part ownership of the business but have it limited to a specific time period. For instance, investors will be major stakeholders in your business for a period of no more than five years during which they will benefit from equity and profits. Once this period closes, they will withdraw from the company and you will not owe them anything.
- Some business owners approach venture capitalists with a booming business idea that they both work to bring to fruition as quickly as possible. The success story is then sold off and the investor ends up making exponentially more than any stakeholder agreement would have made him. You then take your cut from the sale and move on to grow the business you really want.
Business finance doesn’t have to be a heavy shadow over your dreams of business success if you simply take time to properly investigate your options.