A great idea and a strong demand for the product or service you intend to sell aren’t enough to kick-start a thriving business. You will also require a certain amount of start-up capital. The good news is that you don’t necessarily have to have that exact amount just sitting in your bank account and ready for action. There are plenty of smart ways in which to secure funding for your new business from other sources. Here is what you need to know.
Drawing up your business plan
Before you can even think about approaching other sources for business funding, you first need to put your ideas and strategies onto paper in the form of a comprehensive business plan. This plan acts as a road map to success and ideally should include a general overview of your business and operations plan, details regarding sales and marketing, a financial plan, and a close-up look at your various competitors, to name just a few important components. Not only is a business plan sure to be a helpful document for you to continue to refer back to, but it also provides financial institutions and/or potential investors with peace of mind when you request funding.
Taking out a formal vs. an informal loan
Once you have a strong business plan to back you up, you will need to consider where you will get your start-up capital from. Many individuals who are just starting out might feel intimidated about visiting a bank to apply for a loan, and so they turn to their friends and family members instead. This is called an informal loan, as it is unlikely that you will be bound by a contract to pay back the amount owed within a specified time frame. However, it is important to keep in mind that owing a loved one money can put a certain amount of strain on your relationship.
If you opt to go the formal loan route, you have a much more varied selection of options to choose from. For instance, you could apply for a business loan at a bank, seek out a government grant, meet with potential investors, or apply for a credit card. On the other hand, if you intend to invest in commercial real estate, it is in your interest to get in touch with a real estate finance company specializing in short-term ‘hard money’ loans, such as Sachem Lending in Connecticut.
Paying back your loan
It is vital to think about how you are going to manage to pay back your loan long before you actually request one. Missing payments can have a damaging impact on your credit score, after all. So, for peace of mind, only ever take out a loan for an amount that you know you will be able to pay back even in the event that your business idea does not work out as you had hoped.
Best of luck to you as you begin this exciting new adventure.