Starting a business is a very special experience for any entrepreneur. Exciting and challenging in equal measure, it provides you with invaluable lessons on life and people. The journey is enthralling to say the least and keeps you engaged every second. But the first challenge that you encounter on your way to becoming an entrepreneur comes in the form of funding.
Securing funding is a difficult task for any business. The market is afloat with startups and banks are quite strict about lending, given the recessionary after-effects that are still visible. So, how do you set up your dream?
Ongoing funding needs for small businesses
First thing first, you should evaluate the funding needs for your business. It will help you create a strong business plan and you can pitch your idea to the investors very convincingly. Initially, funds are mainly needed to serve as paid up capital, authorized capital and to spend on registration and legal formalities. The ongoing funding needs mainly revolves around office space, equipment and hiring employees. When you get off the ground, you need more funds to expand your wings. Also, you require enough funding to meet contingencies and keep your business going during the tough times.
Typical lending requirements
Small businesses are lucky to have multiple lending options in the form of banks, venture capital (VC) firms, angel investors, credit unions, companies specializing in lending to small businesses, crowd funding, sponsorship, grants and incubators. Your own savings and loans from friends or family can also provide you with the seed funding.
The former are business-oriented organizations and people and hence, they follow certain procedures. You would be required to complete legal formalities and comply with certain terms and conditions before getting the money. Some typical lending requirements are:
- Good credit score and clean credit history – This is most important in case of banks as they give credit scores and credit history major importance while processing your application. Same applies for credit unions and lending companies. All of them want a guarantor and rigorously scan your credit history for defaults.
- Collateral – Your property or security is also taken into account by banks, credit unions and lending firms. Since it is a strong indicator of your ability to repay the loan, these lenders evaluate it meticulously.
- Detailed business plan – Important to all, business plan holds more significance for angel investors and VCs. They have a rigorous screening method and they study the details minutely. So, your business plan has the ability to make or break your chances of securing the funding.
- Personal resume – Again, more significant for VCs, angel investors and sponsors than banks or credit unions, your resume helps create the right impression and win the trust of the lenders. It is a reflection of your business ability and managerial skills to run your enterprise successfully.
Tips for securing funding
No matter which lender you go to, you should be confident and mindful of certain things. The following tips are highly helpful in making a strong case for getting the funds.
- Research all the funding options – With so many lending options out there, you have a vantage point. Now, you should aim at finding that lender who will give you the requisite funding at conditions, interest rates and restrictions that are favorable for you and your business. Also, you should look at the lender as a prospective guide who can help you in your journey.
- Keep it lean in the beginning – Always keep a strict eye on your expenses at the start. Tread cautiously and always think in terms of return on investment while making any purchase. Don’t go overboard with spending on fancy office or extravagant business trips. Always try affordable and economic options.
- Ask for the right amount of money – Both over capitalization and under capitalization are dangerous. So, evaluate what stage your business is at and how much does it need within the stipulated timeline to reach the goals. Be realistic and think long term before finalizing the figure. Lenders are wary of small investments as they offer less returns while big ones put you at risk.
- Work on creating a great business plan – Your plan is the deciding factor while securing funding. So, incorporate exact figures, up-to-date research, realistic projections and engaging sales pitch in your plan. Present it confidently and communicate your vision with conviction.
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