You have a dream and a brilliant idea for a new business. You have professional know-how and an outstanding business plan. You may have even handed in your notice and decided it’s time to make a go of it on your own. But securing one or more start up business loans might prove to be a lot more difficult than you thought. And you’re not alone.
Entrepreneurs often have a difficult time finding the money to get off the launchpad. At this point, it might be a good time to get advice from a professional.
Lenders, such as traditional banking institutions, often perceive a new business venture as being a tad too risky. Don’t let this put you off. There are other funding options to explore, and a financial advisor will show you the ropes and steer you in the right direction towards attaining your goal.
Thinking Creatively to Get That Start Up Funding
Every business has to start somewhere, and if you don’t have sufficient personal savings, you are not alone. There are many ways of getting money for your start up.
19% of all small businesses need some form of outside capital. If you don’t have enough, you might be keen to take out a start up business loan. This will take the pressure off finding money to hire staff, buy equipment, rent an office space if you need one, and more.
Using the services of a professional from the outset is a smart move, too. This will ensure you avoid mistakes that so many start up businesses make. Engaging the services of a financial manager will help you right from the beginning of your venture.
Some Common Funding Options
Chances are that you won’t need a huge amount of money to get your business off the ground. Banks might not be keen to lend money to start up businesses. However, there are other options that new business owners often go with:
SBA Loans and Loans from Non-Profit Organisations
The SBA (U.S. Small Business Administration) program will offer your small business a loan of up to $50,000. The average amount borrowed is about $13,000. But these loans are often hard to qualify for, since they usually are given to businesses that are already established. Collateral will often play a role in securing a loan from the SBA.
Borrowing From Family and Friends
Borrowing from friends and family is more common than you think. The downside is should your business fail, losing important relationships is not worth the cost. The loss will then be far more than losing money.
Using a Credit Card to Finance Your Business Venture
Many entrepreneurs make use of a credit card for short-term expenses. Bear in mind that small businesses relying on credit cards often don’t succeed, as they tend to rely on the promise of future returns to stay afloat.
Crowdfunding could be a good option when starting up your new venture. If you have excellent credit and a strong income stream, this might be a good starting point. Platforms such as Kickstarter and Indiegogo are rewards-based crowdfunding options; instead of giving back money, you thank your lenders with gifts. Crowdfunding is a great way to get yourself off the ground, but is it enough to be sustainable?
Grants from Private Lenders
Exploring government grants and private foundations is another option to secure a loan for your start up. The U.S. Government offers small business grants for former-military or female-led businesses. It might be worth your while to explore these options and see if you qualify.
Personal Start Up Business Loans: An Great Option
Personal loans are a great option for your start up if your personal credit is good and your income stream is strong.
Getting professional help is another good way to begin your start up journey, removing that start up stress with a start up loan. Also consider using the services of other professionals, such as an attorney for drawing up contracts, signing leases, and unpacking any legal challenges you could face further down the road.
Will Bad Credit Stop You from Getting a Start Up Business Loan?
Your personal credit history is considered when applying for a start up loan. This is one of the deciding factors your lender will use to give or reject a loan.
Take a careful look at what could be negatively affecting your credit score. Your credit score is based on your credit history, which will reflect what type of payer you are, and it could be to your advantage to build up a good credit score before applying for any loans. Do you always honor your personal loans? Are you a late payer and do you skip payments? Your lender will decide whether you can afford a loan and if you can meet your payments on time.
But if you have a poor credit history, you may still qualify for that much-needed loan. Before you commit to a start up loan, you may want to consider what’s affected your credit history in the past. A business credit card is a great way to build up credit for your business.
3 Ways A Financial Advisor Can Help
It is important to figure out how you are going to finance your new business venture from the beginning. A positive step in the right direction is to use the services of a financial advisor, who can help you in three main areas.
1. Setting Goals
Your financial advisor will help you set goals for your business. Do you need to see the bigger picture? Where will your business be in 5 or 10 years’ time? Are you planning to branch out? Are you focusing on other investments? Your financial advisor will devise a plan and answer these and other questions you might have.
Avoid the many mistakes that so many start-ups experience. You can achieve success by having a vision and solid goal in place. Your financial expert will help and guide you, allowing your focus to be fully on growing your business from the start.
2. Continual Growth
Your financial advisor will also ensure your business continues to grow. It’s one thing to land big orders for your business, but good financial management is something else entirely. Your financial manager will help you maintain and grow your money. They’re there to help you make smart fiscal decisions, such as investing any excess capital you make and ensuring that money continues to grow.
Smart financial advice will help you to keep your doors open during lean times, something all businesses experience regardless of shape or size.
3. Risk Management
Another piece of good financial advice you will be given is to keep your risks low. Should something untoward happen, a business with a solid foundation will not collapse with this single blow. Your financial advisor will easily identify potential risks for your business, and advise you on how best to mitigate them.
This is vital when dealing with business start up loans. Choosing the right one to apply for as well as deciding what to use the money for are pivotal choices for your business and an educated professional will steer you in the right direction.
Interview a couple of advisors to find the right fit for your business so you can work with an experienced financial expert right from the start. This will prevent mistakes from happening as you move forward.
Next Steps For Borrowers
Like every financial undertaking, start up business loans require borrowers to meet specific criteria. You and your advisor should put together a plan for your application to make you look like the best possible candidate.
Here are some typical requirements:
- You should have been in business for at least 6 months or longer.
- A minimum credit score of 680.
- Proof of how experienced you are in your field.
Depending on what your lender asks for, you might also have to put up collateral as security, which could include property.
When borrowing money for your business, remember to factor in all your expenses. Borrowing only what you can afford might sound obvious, but the opportunity to spend money on your company upfront can sometimes over-excite business owners.
Ask your financial manager to calculate how much you can afford, and create a plan for the total repayment. Make sure you have crossed all your t’s and dotted all your i’s before you sign up for a loan amount.
You should also take into account the interest that you will be paying and how much the interest accrued over the loan period will amount to. Be sure to factor in the cost of your financial advisor as well.
Saddock Is Here To Help With Start Up Business Loans
At Saddock Advisory, we bring years of experience to the table for financial advisory and wealth management services.
We are here to discuss the best options for you and your business and make sure you are as prepared as possible to get the loans you need to succeed.
Get in touch with us here to find out how we can help your specific business financial needs.