Starting a new business the right way

by | Feb 14, 2019 | Financial Featured

Financing can be the make-break issue for anyone contemplating setting up a new business. It is therefore very important you know what your financing options are.

Anyone who has successfully established a new business knows that having a dream, and the determination to realize it is not enough. Financing issues are one of the major challenges facing the setting up of a new business.

Since relatively few would be entrepreneurs have the ability to establish a new business without requiring any external source of finance, it is vital that you ensure you have all the pertinent information as to the potential sources of financing may be available to you, and which ones are the most suitable to your specific requirements.

Prepare a detailed business plan, so you are fully prepared when you apply for a business startup loan. A good business plan makes you look professional and competent, and enhances that all important first impression. In addition, this ensures you have all the key information to determine what kind of loan you need. The repayment period is probably the most important criteria. If, according to the business plan you have prepared, the new business you want to set up will not begin to show a profit before 18-24 months, you need to focus on business loans that offer a repayment period and terms compatible with those expectations. This is more important than other criteria such as interest rates.  Taking a business startup loan with repayment terms that risk creating cash flow problems, just because it had a better interest rate is being penny wise pound foolish

Another major issue that you, as a would be entrepreneur must fully and assiduously address, is your credit rating. This is a key factor impacting not just your ability to get a loan, but what it will cost you. The better your credit rating, the more competitive a potential customer you are. This means you can afford to be picky, and focus on the small business loans that best meet all your criteria.

It is therefore vital you ascertain your credit rating prior to requesting a loan. Any financial institution, especially one that provides new business loans, expects you, as an entrepreneur to come fully prepared, and that includes knowing exactly what you your credit rating is. If you don’t, or even worse, provide inaccurate information, they will pick up on this very quickly, which will do nothing for your reputation. You start the game with one strike against you before actually facing the first pitch. We highly recommend you read the accompanying article which is dedicated to the subject of credit rating agencies.

In addition to financial institutions that offer new business loans, there are a few other avenues that everyone seriously contemplating establishing a new small business should explore.

One is family and friends. If you can borrow from family and friends, do so. The advantage of borrowing money from them, rather than taking a business startup loan from a financial institution, is that if you discover you need additional time to pay it off, getting an extension from them is easier than from a bank or other financial institution. When approaching them, make sure you are as well prepared as you would be for a meeting with a loans officer at a financial institution. This includes having prepared a business plan, and checked your credit rating. Don’t assume you can take short cuts just because you know them, remember you’re asking for money, not inviting them to a barbeque, so you need to portray competence and professionalism. If you approach them without being as prepared as you would be when approaching a bank, they may feel you are taking them for granted. That is not the way to win friends and influence people, and certainly not to get them to write you a check.  granted.

Family and close friends can be approached personally. If you want to reach a broader circle of friends, look at crowdfunding. There are lots of very accessible avenues out there, and you might be surprised by what you are able to raise this way.

Another place to look is local government, at the city, county and state levels. As a rule of thumb, most state and local government have small business friendly policies. This is not surprising, since they correctly regard small businesses as important growth and employment generating engines. Many local and state governments have established small business oriented agencies, often in collaboration with local chambers of commerce. These organizations offer an array of useful programs to help would be entrepreneurs establish new businesses. These can range from mentoring programs to facilitating access to attractive financing packages. These can include longer grace periods, loan guarantees which translate into lower interest rates, and sometimes even the possibility of part of the loan becoming an outright grant. Information regarding such programs is usually easily available on the internet, and can be effortlessly googled.

Such organizations are also great networking sources, so there is much to gain by getting to know them, even if you end up not getting any kind of new business loan from them.

Another potentially more attractive option is to approach financial institutions where you already have funds, such as pension savings. Insurance companies and other money management institutions often allow you to take a loan based on the funds you have already saved with them.

Such loans are usually less expensive, since they are inherently less risky to the lenders. Low risk usually means lower interest rates. Some institutions may even have specific new business loans programs. If you are lucky enough to have funds against which you can borrow with an institution that has a small business loan program, it is definitely an avenue worth prioritizing. .

Whatever route you decide to go, we wish you good luck, and hope you will join the ranks of those who have, through diligence, skill, hard work and a tad of good luck, have succeeded in realizing their dreams.

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