by Brian McKay
Any entrepreneur who decides to open a business needs to make sure they have the funds behind them to make it work. You can’t start a successful business without having supplies ready, vendors on speed dial, and even employees ready to help you to drive your business forward. Acquiring business capital can be one of the most difficult things to do when starting out, so this guide is designed to help you navigate the steps and get the capital you need. Read on for 7 crucial steps to acquiring business capital!
Don’t Wait Until You Need The Loan
The best thing you can do is work on getting your capital in place before the loan is needed. It’s so important to build relationships, as they will help you to get a better deal when it comes to needing the money. You should let the key contacts at a loan company get to know your business before you ask for anything. People like to do business with those that they know and trust!
2. Know What You Need The Money For
There are many reasons you might need a business loan, but some of them can be good and some of them not so good. For example, you might need to finance a piece of equipment, create a piece of software, or have another valid reason for needing a loan. You definitely don’t want to take out a loan to finance ongoing losses, or to get your hands on things for the business that aren't essential.
3. Know How Much Money The Company Needs
Did you know that most small businesses don’t take out a big enough loan? If you underestimate the amount of money you need, it can quickly lead to problems with lack of working capital. Overestimating, by contrast, can mean lenders begin to question your assumptions and credibility. This is why a well thought out budget supported by your projections is imperative to show that you’ve done your research.
4. Know Your Credit Score
A Lender will likely still look at your credit score to judge how reliable you are. They look for a number of other things too. They’ll want to see a credit score between 650-800, debt payments that are no more than 33% of gross monthly income, how long you’ve been in business, your reports on cash flow, and more. This is why having great records in place is a must.
5. Look For Your Lender
Make sure you do the research on the right kind of lender for you based on your loan needs. You could go to a commercial bank, a non bank lender online, and micro lenders or alternative lenders like those on Kickstarter.
6. Prepare Your Application
Usually, you apply for a loan using a loan package, which is paperwork submitted so you can apply for a loan. It will include your business plan and your financial results/projections, as well as personal financial information and three years of tax returns to back up what you’re saying. Lenders may even check your social media sites as part of their research, so double check you don’t have any incriminating evidence on there that could stop you from getting the loan.
Once you’ve done this, you should have your answer within 2-4 weeks. All that’s left to do, providing you’ve done everything you’re supposed to, is wait.
Now, there are other ways you can acquire business capital without having to contact a bank. Here are some suggestions:
7. Explore All Of Your Options
Go To Friends And Family
The success of any business just starting out, can often be down to the support from friends and family. Their emotional support can really help business owners to keep moving forward, but in some cases, they are willing to give capital too. However, it can be dangerous to loan money from friends and family without some kind of agreement in place. You don’t want this money to end up being the death of your relationship, so be smart about how much you borrow and how you plan on giving it them back.
A private lender allows a business owner to get access to funds without the government getting involved at all. A site like My Business Funded could be the perfect alternative option to a bank when you’re looking to get business capital.
Take Out A Credit Card
Credit cards aren't a great long term capital option for a business, but they can certainly be helpful in the short term. You will need to pay your cards off at the end of each month, and if you don’t you could easily scupper your chances of acquiring more capital later on down the line. You could open a credit line if you plan on making the occasional purchase. You shouldn’t rely on a credit card to keep you afloat, but it can be great for some business purchases, as well as when you’re doing your taxes, as you can have all of your purchases in one place.
Angel And Seed Investors
Angel and seed investors can be found on the internet, or you may even know of some in your personal network. This person can become a sort of advisor to you who you could potentially give equity in the company - like Shark Tank. Take advantage of their network, as it should be as rich as they are. If you don’t have any investors in your network, look online.
There are lots of crowdfunding sites out there, such as Kickstarter and Indigogo. This is how you can ensure your business meets a large audience in your niche, and you give them a chance to bring your ideas to reality. In this respect, you also get a good idea of whether you have a viable business or not. You will experience many benefits from this, including creating a community around your product, and allowing those who have invested to test and help you to streamline what you’re working towards.