A critical question that arises with most new businesses is “How do I finance my business?” Finding the right financing for a new business has never been an easy task. In tough economic times, that task becomes even more difficult. Sometimes it can seem like an insurmountable obstacle that you will never overcome.
If you have an existing business, the question “how to finance my business” is easier to answer. There are some avenues that may be open to you that are not available to startups. 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 lending you money.
With new business, however, you have nothing more than an idea to offer banks and lending institutions. Based on new business failure rates, even in the best of times, most lenders won’t be willing to offer you any solutions.
The exception to this is if you can raise enough capital on your own that reduces the risk of lending institutions. As long as lenders are reasonably sure that they will be able to recoup their investment, they may be willing to consider offering you financing for your business.
Another route you can consider is to find private investors who are willing to invest money in your company. While there are many people who are willing to invest in new businesses, it is not always so easy to find an investor who is willing to invest money in your business.
The first step in the process is to locate investors. Your local Chamber of Commerce can point you in the right direction. You can also check with the Small Business Association. If that doesn’t produce any results, you can also try looking for investors on the Internet.
If you decide to try to raise money from investors, you’ll need to have a solid business plan. This should be a complete business plan, not just some ideas you jotted down in a notebook. He must be able to show any potential investor that he is trying to open a legitimate business and that he has really thought about how he plans to make his business work.
You should also keep in mind that investors will want something in return for the money they invested. This means that you will probably have to repay the investment with interest. This could be a fixed interest rate, or it could be a percentage of the earnings for the duration of the investment.
If you have personal assets, you should be able to invest as much as you can. Other lenders won’t be too willing to consider giving you money if you’re not willing to show your confidence in your business by investing your own personal assets.
You may also want to consider turning to family and friends for money for your business. It could offer returns similar to what investors would expect. Make sure they know that this is a business investment and that you intend to get their money back.
The more money you can raise on your own, the more likely it is that banks or investors will be willing to talk to you about your investment needs. Once you find an answer to the question of “how to finance my business,” make sure you finance enough to keep your business afloat for as long as it takes to get established. The main reason new businesses fail is that they didn’t have enough money to survive the start-up costs. Don’t let that happen to your business.