Does money make the world go round? If you’ve ever dreamed about setting up your own business you’ve probably wondered if that’s indeed the case.
Every business was a pie-in-the-sky dream once upon a time but the biggest obstacle to realizing that dream is raising the capital in the first place.
You’ve all heard the statistics about 8 out of 10 people who set up a business failing within the first 18 months but rarely do people reveal the reason why: they simply run out of money or didn’t have enough in the first place to sustain them.
If you’re Facebook or Apple, companies that make turnovers in the billions of dollars, loan companies will bend over backward to lend you whatever you need.
But how do you, a smalltime business owner with big ideas, secure a loan to start a business? The answer is simpler than you think?
Embrace the Internet Age
Whenever anyone thinks about funding their business ideas, the first thing that probably comes to mind is a traditional loan from a bank. Whilst this is definitely an option you should consider, it shouldn’t be your first port-of-call.
Instead, think about equity crowdfunding. This is where potential investors who like your idea and business plan will offer you funds in return for shares in your business. How successful you are this depends largely on how good you are at persuading other people to part with their cash.
You need to be able to explain your idea concisely and in terms that are easily understandable and then shout about them as loudly as you can – think a big campaign on Facebook, Twitter and Instagram, guest posting on blogs and even reaching out to the local and national press.
Also, think about debt based crowd-funding.
This is a pretty risky business and involves lending money from lots of people online, with an agreement to pay them back after the business as taken off. To do this you have to be careful not to borrow more than you can afford and to make sure the people you are lending from are legit.
Put Your Money Where Your Mouth Is
Another option to consider is to pour some of your own funds into the business. Obviously, this requires being sensible with the amount you can realistically save and afford but knowing your own money is on the line can often be a great incentive to succeed.
In all of these cases you are unlikely to be able to raise all of the money you need but, as the saying goes, every little bit helps, and the more money you can get from different sources, the less money you are going to need to borrow from the bank or borrower, and the more seriously the bank will take you when you approach them for funding.
Taking out a Loan to Start a Business
So, you’ve scrimped and saved as much as you can and explored as many other alternative sources as you can and you’re ready to approach the big boys. Where do you even begin? Getting a loan for a new business is tricky but don’t despair.
Here’s where to start.
The Small Business Association (SBA) is the key starting place. They have a list of approved lenders and by filling in their short form you can find potential lenders who match your business interests.
Microloans are also an interesting way of getting hold of some investment. They will often be a smaller amount than you can get from the traditional SBA approved loans but they have a lower interest rate and may also have some additional training or planning requirements.
If your business involves selling goods from Amazon or E-bay you might also want to try this service from Dealstruck, who offer what is known as an inventory line of credit.
This is where you use the goods you’ve purchased as a form of collateral for your loans. For businesses involving goods, having the funds in place fulfill those orders at all times is crucial and this can be hard to maintain when you’re first starting out.
How to Improve your Chances
- Boost that credit score. Most lenders will only lend to people with a score higher than 580 on the FICO score, with 800 being the highest. If you’ve never had a credit card before, firstly you’re missing out as hunting for one with good rates and a high credit limit could help you put up more capital to the bank when applying for your loan. Check out our guide to improving your credit score.
Secondly, if you’ve never had a credit card this can adversely affect your rating since a lender has nothing to go on, you could be seen as a potential risk. Take out a card you like, use it for six months and always pay it back exactly on time.
- Sort that business plan. How many times on Shark Tank have contestants lost out on the money because when it came to the crunch they didn’t know their figures? Nobody is going to invest in you if your busniness plan isn’t watertight and you don’t know your market.
- Yes, I know it’s 2019 now and everybody is much more liberal and much more ok with a more casual look at work but sometimes old-school is best. If you’re ever invited to a face-to-face meeting either with the SBA or an investor dress like you mean business. Put on a good clean shirt, some trousers or a nice dress and maybe even a tie.
What Now?
With any luck following all of this advice your path to getting a loan to start a business will be a roaring success.
But after you’ve kickstarted your business what should you do next?
Not everything will be plain sailing but that’s ok. Our tool kit has a huge array of goodies to help you including a link to a free credit score check, personal financial modeling and our recommended reading list of business classics.
Go check it out.