Business Loans

One of the first decisions an entrepreneur has to make is determining how to finance a business.  Especially in the economic world today, it has become increasingly difficult to secure a loan large enough to get a business of the ground. You may need to develop several different resources for starter capital. For example, you may need all six different ways to finance your business.

With unemployment rising and more people afraid to spend their money, your business will have to provide a product or service that is recession-proof. Then, you will have to come up with a sure-fire business plan. You will need a realistic view of your financial goals, and exactly how your venture will surpass the competition.

To begin, you have several options, when it comes to providing business capital:

•   Personal Contribution
•    Lenders
•    Investor Partnership
•    Money Management
•    Business Grants
•    Subsidize

Of course, some financing options are preferable to others.  So, you will have to consider your personal and business goals when choosing the best way to finance your business.

Personal Contribution

If you want your business to be successfully financed, you must be willing to put a significant portion of your own money on the line.  Think about it!  Except for people in your inner circle, who will be willing to invest in your business, if you do not have enough faith and confidence in your own professional success to save, alter your lifestyle, and make the sacrifices needed to ensure your business has the capital needed to become a thriving enterprise?

However, if you have enough faith in your chances of small business success, investors and lenders are more likely to consider you a good financial risk.  The whole idea in giving you money is to make an investment that will eventually make more money.

Lenders

Lenders for your small business can come from several different sources.  For example, if you have friends and family that believe in your ability to succeed, they might decide to invest in your small business, mostly to help you out.  However, even loved ones would like a return on their investment in your business future.

Of course, you can also apply for a small business loan.  However, with the economy on shaky ground you need to be prepared for a lot of red tape and extra effort on your part to prove your idea as a potentially successful business venture. In addition, the interest rate is likely to be hirer than anticipated.

Another option is a line of credit, such as a charge card.  However, the interest rate will probably be extremely high.  Unless your business shows a significant profit in the first quarter, the interest charges alone can put you in the poorhouse and create a small business risk.  Therefore, this option is not recommended and should be used only as a last resort, for a small amount.

Investor Partnership

Some small business owners have partners who are willing to invest in their small business idea.  While this can be a win-win situation for all concerned, it is not without significant risk.

For example, does the future partner understand the benefits and risks of their investment?  Do they have a realistic expectation of small business profits?  In other words, are they going to have the patience to give your time to become successful?  If he/she wants out of the business, will you be able to buy them out, or will your small business fail?  You will have to ask yourself all of these questions, and more, before taking on a partner-silent or otherwise.

Money Management

Small business money management is another way to raise capital for your business.  For example, you might simply have to save the money needed to start your small business.  Forget buying that new car; downsize and move to a smaller home for a cheaper mortgage or rent. Essentially, be more frugal in every area possible, and put the money into your business.

Also, you can barter with other businesses.  For instance, you might have a service they need and they have a product necessary for your business.  You trade one for the other.

Business Grants

Of course, you can apply for small business grants. You will have a better chance at receiving a grant; if you have a non-profit business, or you can prove your business with contribute significantly to the community.  Unless you have applied for grants in the past, you will probably need to hire professional help to compose the grant properly.

Subsidization

Someone may subsidize your small business, without requiring partnership, if they will profit from their generosity.  For example, your employer or someone else might believe in your entrepreneurship and want to give you a positive start.

In short, you have several ways to finance your business. Which options work for you depends largely on the type of business, the startup capital required, and the business plan you present to lenders and investors. Ultimately, your success will be largely determined by your perseverance.

 

 

Before you can ask lenders or investors for capital, to get your enterprise of the ground and on the way to success, you will be personally investing in your small business.  In fact, most of the money needed to start your business will come from deep within your own pockets.  So, before you can seriously consider selling a product or service, you will have to sit down and consider your financial health and how much money you have to sink into your business.

Your Bank Account

In the beginning, about 80% of all entrepreneurs will delve into their personal savings and bank accounts, to start their small business.

So, you are definitely not alone!  Maybe you have been saving for years, while working for someone else, with the notion of becoming your own boss some day.  Maybe you have inherited some money and decide this is a golden opportunity to make a dream become a reality.  Either way, if you really want to finance a small business, you are going to have faith that what you have to offer in products or services will sell and put your own money on the line.

Collateral

Even if you have been saving for years, and think you have enough money to keep a business going, until it starts showing a profit, you may be surprised. Paying employees, the location, equipment and supplies, or whatever you need quickly adds up.  Your ready cash is already in the business and now you need the collateral to get a small business loan.

But, where are you going to get the kind of money?  For many small busy owners, the answer lies in the roof over their heads.  If you own your own home, and have significant equity, you might be able to acquire a home equity loan.  However, especially with the economy weak in this area, the bank will need assurance that if you default on the loan that they will be able to get their investment back by selling your home.

So, you will have to get an appraisal on your home.  In most cases, a lender will want you to at least have 50% equity in your home.  Of course, you will now have to subtract the cost of the appraiser.

Unfortunately, there is definitely big risk in putting your home up as small business loan collateral.  If your business should fail to withstand the pressures of hard economic times and the competition, you will not only lose your business, but your home as well.  You will definitely need to weigh the risks against the benefits.  Plus, if you are married, you and your spouse should be in total agreement that this is the way to finance your small business.  More than one promising entrepreneur has lost everything, including family, when their business has fallen on hard times.

Credit

If you have excellent credit and can show yourself to be a good credit risk, you might be able to use the leverage to get a business loan.  But, if your business is just starting out, this may be an impossible task, because you have no credit history on which to lean.  But, if you have already been in business for a couple of years and need some capital to expand or invest in new equipment, you will definitely have a better chance of getting a loan. In short, the facts of your business will speak for you.

Loans

Many entrepreneurs depend on small business loans to keep their business growing.  The loans may be short term, until purchase orders are paid, or projected income is realized.  Conversely, it may be a long-term loan in order to expand the business or renovate to bring in more customers.

Generally, if you get a loan, it will come from one of two sources:

•    Commercial Lenders
•    Friends and Family

In either case, getting a loan has its own risks and benefits to consider.  So, you will have to be very confident that the loan can be paid back as agreed, or it can do irreversible damage to you both personally and professionally.

For many, commercial lenders are the only way to get a small business loan. It is all about crunching the numbers, going through a business plan, and assessing the credit risk.  It is all kept professional and straightforward.

However, if a commercial loan is not possible, you might need to turn to friends and family for small business financing. But, for the sake of your personal relationships, treat it as you would any other business transaction.  Get the terms of the loan down on paper.  Many a relationship has gone south when financing a small business has crossed the line between love and loan.  So, whether the loan is commercial or personal, make sure the terms are written down.

Well, now you know at least four ways to use your own money to invest in small business.  None are without a certain element of risk.  So, it is extremely important to weigh the pros and cons, as well as consider alternative financing, before signing on the dotted line.

Your community probably has several people who are looking for opportunities to help entrepreneurs realize small business success.  Some may be searching for individuals just like you; others may simply have their eyes and ears open to any new investment opportunity.  It is simply a matter of making sure you and your potential angel meet.  You need to know how to find angel investors for your business.

You might be lucky enough to have your angel drop on your doorstep and suggest some sort of business deal.  However, in many cases, they are looking for entrepreneurs just like you, and you are looking for investors just like them.  It is not happenstance that you and your angels get together and talk.

Unfortunately, by the time you realize that you are in need of an angel investor, you have probably already been turned down by lenders and other resources for small business capital. People are leery to give you the seed money, or invest in a new business, because the risk that they will not see an adequate return on their money is greater.

On the other hand, angel investors generally like to get in on the ground floor-so to speak.  They know it can be a challenge to find adequate financing, and they genuinely want you to have the chance for small business success, even if the venture may be riskier at this stage of the game.

But, angel investors are not accustomed to simply throwing their money in any direction and hoping the money returns will boomerang back to their pockets.

  Angels do have specific criteria to be met, before handing you a check:

1.    Location
2.    Your Business
3.    Investment Size

Everybody is different.  Your guardian investor may have a different reason for wanting to help you out, but these 3 criteria are often important.

Location

Chances are good an individual will want to support a small business that is going to be close by and an asset to the community in which they live.  Do not make the mistake in assuming these types of people are going to walk away and not give your business a second thought, until the residuals start showing up in their mailbox.

Quite the contrary!  If you are worthy of investment, you are important.  Your success is also their success.

Your Business

Angel investors will often pick small business entrepreneurs that are providing a product or service of personal interest and knowledge. Oftentimes, they want to be able to help by providing advice and guidance based upon their own experiences. Giving your business the chance to succeed is much more than a monetary investment in a small business.  They too have a heart and a belief in what you are trying to accomplish.

Investment Size

The criteria for investment, for some angel investors, are simply the size of the investment needed.  Maybe they know you need a good chunk of money that no lender will okay, because you are still too much of a risk.  Conversely, maybe they are a small investor, or a member of a group of angels, who do not have a lot of money to give you, but understand that every little bit helps.

So, now that you know there are angel investors out there, and the basic criteria they are looking for, you simply need to get together, so you can talk business.

If an individual has not found you first, there are several things you can do to make your business known:

1.    Networking
2.    Media
3.    Events
4.    Angel Lists
5.    Internet Services
6.     Referrals

As you can see, many of the same key activities that will bring customers or clients to your door will also attract angel investors. You might be able to accomplish advertising and investor attraction simultaneously.

As far as gaining local investors in concern, networking is similar to that of Internet enterprises, but not quite.  Networking via the Internet is intertwined with blogging, social sites like Twitter or Facebook and creating links back to your business.

In essence, you are doing the same thing in your community, but in person.  Maybe you go out for coffee in the morning and meet with other business people.  You make your business known around town through socialization and depend upon word of mouth to promote your small business venture.

Of course, you can also use the media and special events in the community to sell your ideas to potential investors.  For example, you may want to attend a trade fair.  It would be a logical place for angels to come looking for you.  You might also find an investor through lists that might be provided to colleges, universities, and community service programs, for the sole purpose of connecting budding entrepreneurs will financial assistance.

You might also be able to find assistance on the Internet.  Services are available specifically for helping small business owners and potential investors meet up with one another.  However, even with all the advances in technology, nothing can beat the most basic of financial resources-referrals.  Your reputation, and that of your guardian angel, will become known, and referrals can be a financial life saver.

So, now you know what angel investors are look for in small business ventures.  You have some ideas for attracting their attention.  Now is the time to develop a plan and get busy finding small business financing.