Starting a business is exciting work. The process of planning, making connections, and finally opening your business can be thrilling. But it also comes with challenges, and among the most dificult aspects of starting a business is coming up with adequate funding. Banks are sometimes reluctant to lent to first-time business owners, or individuals with less than sterling financial histories. New costs continually arise, and needed cash can quickly outgrow early projections.
With all this in mind, effectively considering loan options is essential for success in business.
Make a Sound Plan
A well-designed business plan is essential to having success with a new business. A plan will demonstrate to lenders — and almost more importantly, to yourself, and any partners and prospective employees — how your business will succeed. It will necessitate and demonstrate a thorough understanding of your industry and local market conditions, and will display a coherent financial sense of how your business will achieve profitability.
There is no one way to design a business plan, but you should strive for it to be comprehensive. Cover expected (and to the extent possible, unexpected) contingencies that may arise in the course of business. Show where your funds will come from, and how you will turn a profit. Above all, demonstrate why your business is unique, and how it will be successful.
Ultimately, the better your plan, the more loan options you will have.
Consider Various Financing Options
In theory, there are a number of potential loan options for a new business owner. Many entrepreneurs first seek out a traditional commercial loan from a bank or credit union. If you have the profile to access one, you may be able to secure affordable interest rates and long terms.
However, for any number of reasons, many new business owners have trouble securing a conventional loan. Exploring alternative lending options then becomes essential to finding success.
Some common alternative lending options include:
- Crowdfunding — in which you seek a large number of small donations from a wide pool of donors, or secure major investments from a smaller number of venture capitalists or angel investors
- Asset-based loans — in which you secure a loan based on the value of a given “asset”
These are only several of the plausible ways to fund a new business. Making a solid plan and reviewing all your options will help set you on the path to fiscal success.
