When the economy is just recovering from a downturn, it is not easy to get funds for your business. Therefore, before you start your venture, have in place not only a good business plan but also seek advice from an experienced and successful businessman. One who would be in a position to give you information regarding the working capital that you need to tide over the first year of the startup, or until you break-even. We have put together a few points on how to get funds for your small business.
Tips on Funding your Business
- Explore all sources – The best way to fund your business is by using your savings, credit cards, home equity or insurance policy. If you are funding from your own wallet, you are not answerable to anyone. However, you should explore other sources before using your personal money. See if your local bank or the bank with which you do business with is willing to give you a loan. You can also look into the government schemes such as Enterprise Finance Guarantee and other regional funds that are available through Small Business Administration. Ensure that you are getting loans from the right lender, at good interest rates.
- Have a business strategy in place – You need to decide whether you want to ask your friends and family for the funds or seek out investors. Whether it’s investors or friends/family, whoever is going to fund you, would want to know about your business and how you plan to make it a success in the next few years. The investors would want a professional written plan while the people who know you would prefer you talk about your plan informally over a cup of coffee.
- Decide whether you want to take a huge sum from a single investor or small sums from many people - You need to decide your investment type. Keep in mind that there will be strings attached to money that has been lent. If it is a loan from an angel investor, get a small business lawyer to make a legal draft, so you are not in trouble in the future. However, it is advisable to avoid investors. When your business is doing well, investors will want to join in. It is wise to borrow small from friends and relatives. If someone gave you money without wanting anything in return, you may not have to return the money, but it’s always wise to keep the person in the loop and notify them on how everything is doing. It’s a great way to show gratitude towards the person.
- Deposit money in your account – Bookkeeping is mandatory if your business wants to succeed. It’s important to keep track and write down the daily expenses. Without fail, deposit money which comes in through sales at the bank the same or very next day. When the bank manager sees that you are depositing even the smallest amount regularly, they will develop a trust in you and your business. This allows you to build a relationship with the bank manager, hopefully securing you a business loan.
- Money saved is money earned – When you know that there is a cash crunch, you should reduce the expenses by saving money on your small business. Some ideas on saving money is avoiding prime office space locations and buy reconditioned furniture and office equipment that are in good condition. Instead of hiring accountants and consultants, ask one of your close friends or relatives to help you out and pay them a small wage. Therefore, this will help curb your unwanted expenses.
Applying for a business credit card is another source of funding. Be careful of not overspending and make sure to pay the minimum amount on time, or else you will be in debt. Credit card debt will affect your credit scores which in turn, will affect the process of receiving a loan. If repairing your credit scores is going to take a long time, then no financial institutions will be ready to invest in your business or you would have to pay a high rate of interest.
If you are prudent with your money, the business will succeed and money will start pouring in.
Flickr image by 401K