How to Finance Your Business3 min read
A critical question that comes up with most new businesses is “How to finance my business?” It has never been an easy task to find adequate funding for a new business. In tough economic times that task becomes even more difficult. At time it may seem like an insurmountable hurdle that you will never get over.
If you have a pre-existing business, The “how to finance my business” question is easier to answer. There are some avenues that may be open to you that are not available to new businesses. If your business has an established track record of profitability, banks and lending institutions will at least be willing to talk to you about opening a line of credit. Because you have business assets that can be used as collateral these banks are more willing to consider loaning you money,
With new businesses, however, you having nothing but an idea to offer the banks and lending institutions. Based on the failure percentages of new business even in the best of times, most lenders will not be willing to offer you any solutions.
The exception to this is if you can raise enough capital on your own that will reduce the risk of the lending institutions. As long as lenders are reasonably assured that they will be able to recoup their investment, they may be willing to consider offering you financing for your business.
Another route that you may be able to consider is to find private investors that are willing to put money into your venture. While there are many people that are willing to invest in new businesses, it is not always so easy to locate an investor that will be willing to put money into your business.
The first step in the process is to locate investors. Your local Chamber of Commerce may be able to point you in the right direction. You may also want to check with the Small Business Association. If those do not yield any results, you could also try searching on the internet for investors.
If you do decide to try for investor money you are going to need to have a strong business plan. This should be a full business plan, and not just some ideas that you jotted down in a notebook. You need to be able to show any potential investors that you are trying to open up a legitimate business, and that you have really thought through how you plan on making your business work.
You also need to be aware that investors will want something back for the money they invested. This means that you will probably have to pay back the investment with interest. This could be a set interest rate, or it could be a percentage of profits during the duration of the investment.
If you have personal assets you will need to be able to invest as much as you can afford. Other lenders will not be very willing to consider giving you money if you are not willing to show your belief in your business by investing your own personal assets.
You might also want to consider going to family and friends for money for your business. You could offer similar paybacks as investors would expect. Make sure they know that this I a business investment, and that you intend on getting their money back to them.
The more money you are able to raise on your own, the more likely that banks or investors will be willing to talk with you about your investment needs. Once you find an answer to the question of “how to finance my business,” make sure that you finance enough to keep your business afloat for however long it takes to get established. The biggest reason new businesses fail is that they did not have enough money to survive the costs of opening. Don’t let that happen to your business.