There are a number of sources available to help
you finance your start up business. The primary
source of funding for a start up business is personal
savings and money borrowed or invested from friends
and family. The next most popular resource for
startup business funding is through major lending
institutions, banks, and credit unions.
Venture capital firms also provide funds in exchange
for equity or partial ownership. Venture capital
has become increasingly more difficult to obtain.
To present your plan to a VC firm, you’ll
need an absolutely solid business plan and a presentation
that will capture the imagination of the VC firm
along with data to back up your claims of anticipated
revenue potential.
There are two types of business loans; short
term business loans and long term business loans.
A short term loan has a maturity of up to one
year. These are applied for working capital, accounts
receivable, and lines of credit. Long term loans
are taken for more than one year but usually less
than seven years. These business loans are generally
for major business expenses such as purchasing
real and estate and facilities, construction,
durable equipment, furniture, fixtures, vehicles.
The approval of a business loan depends on how
well your business plan is written. It should
contain the general information related to your
business like the business name, name of principals,
purpose of loan and amount required. Next, a proper
description of the business should be provided.
It must include the history and the nature of
the business details, like the number of employees,
what sort of business it is, and ownership details
of the company’s legal structure. It should
also include the financial statements, balance
sheets, income statements, personal financial
statements, collateral documents that you are
willing to pledge.
In order to be successful in obtaining a loan,
your business plan needs to be well prepared.
You should know exactly how much money you need,
where will it be used, why you need it, and when
you will pay it back. Your business plan should
have a proper introduction that includes a detailed
description of the business and its goals, the
legal structure involved, your skills and experience,
and the advantages that your business would have
over the competitors. Also critical is a well
thought out marketing strategy to show how you
attract and retain customers
Another consideration of your loan approval depends
on whether or not you have invested saving or
personal equity and what percentage of it you
will invest. If you’re not willing to invest
in your business, why should the lender? Your
credit history is an important factor in determining
the approval of your loan. You’ll need to
have a plan for proper financial management explaining
the amount of initial equity capital, monthly
operating budget, expected return on investment.
The important factors of obtaining a start up
business loan can be broken down into 6 essential
elements; character, capacity to pay, capital,
collateral, conditions, and confidence. Ensuring
that you’ve covered the basics of these
six C’s will help you to secure your start
up business loan.
Back
