New businesses are always in need of extra working capital. Whether it is to lease equipment, launch a marketing campaign, or to take on larger clients – startup financing is necessary for survival. In order to get the startup financing your business needs, you are going to have to know a few key facts before seeking out working capital of any kind.
You need a business plan
From major banks to investment angels, all lenders are going to require you to have a business plan before they will even discuss startup financing. A business plan is no only a handy guide for running your operation, but it shows potential lenders where you need to allocate startup funds, how long it will take your business to turn a steady profit, and your financial projections for the next three, five, and ten years. By presenting as many details about your company as possible, lender will be more inclined to give you the startup financing you need.
It is very difficult to get bank loans
Most new companies gravitate toward bank loans, because there is almost a mystique about them for being an “official” loan. However, even with the lengthy loan application process, less than 40% of all bank loans for businesses are approved – that percentage is even lower for new businesses seeking startup financing. Banks want to see an established and healthy business credit rating, as well as a track record showing the company’s ability to bay bills on time, before they consider approving a business for a loan. On top of that, banks are often times limited by the amount of money they can lend to businesses, which is why most business owners seek out commercial lenders for startup financing.
Business owners need to be persistent
The startup economy is on the rise, and with that, the number of business owners seeking startup financing is also growing. While no one likes a pest, following up with potential investors will get you noticed. Keeping the lines of communication open and checking in on a regular basis shows investors that you are serious about your company. Even if you are denied access to startup financing the first time around, ask why the business was turned down – this can give you insight on what you need to work on in order to receive that coveted “YES!” the next time you apply.
Avoid using personal assets
There are many forms of commercial lending out there, and a few of them require business owners to put up personal assets (home, vehicle, etc.) as collateral in order to receive access to startup financing. Financial professionals advise that entrepreneurs – even if the operation is being run out of a home office – keep personal and business finances separate. Business owners should focus on establishing the credit rating of the company, rather than put their personal belongings on the line in order to get startup financing.
Research city, state, and federal loan options
When looking for startup financing, many business owners overlook the local chamber of commerce, state financing incentives, and even SBA Loans as viable options for working capital when launching a business. The requirements to access startup funding through these agencies are not as stringent as major bank chains, but business owners must adhere to the rules set by agencies like the SBA as far a business plans and payment schedules are concerned.
Work with a startup professionals
Most startup owners are blazing new trails with only their peers to look to for advice. By taking on a mentor, or working with someone from a financial company, entrepreneurs will get an inside view of what lenders are looking for from business owners in order to get approved for startup financing. Many places offer free consultations, and will give constructive advice about everything from business plans, building the company’s credit rating, and the various startup financing options that would work best for their business models.