Getting a Loan For a New (Start-Up) Business
The idea of starting your own business, and being the “boss” is not for everyone. It is a lot of work, a lot of responsibility, and none of the safety net features of working for a company and being an employee.
As the owner of a business your jobs and responsibilities can be finding the jobs or products to sell, buying them, or selling your services, doing the work, and also handling the financial aspects, such as getting paid, paying bills, etc, all the things that go into running a company.
Of course one of the first things that a new business owner needs to think about and sort out is the company’s financials. And the first one may be, how do I fund the company to get started?
Where is the money going to come from to get started?
You can use your own money, savings, and even personal lines of credit, such as credit cards, overdrafts, personal loans, all in your name and your responsibility.
Trying to take out a loan for a brand new business, a “start-up” company can be challenging, but not impossible.
Then there also is the question of if you should even take out a loan to start a business? Can you start the company without borrowing? Possibly, but it is going to depend on the nature of the business, service or product related, and what initial costs may be involved.
Then there also are various types of loans that are specifically just for businesses, and can be tailored depending on the nature of the company.
The major hurdle of getting a loan to start a new company is that the company has no track record, no proven record of success, sales, profits.
And that my friend is one high hurdle!
So how to get around this hurdle or clear it? There are a couple of ways, and it all starts with a business model.
A Business Model
The first step in putting together a new business, besides your great ideas, is to put pen to paper, or fingers to a keyboard, and put together a clear and concise business model.
This is your first port of call in seeking funding to get your ideas and business off the ground.
You need to show how your business will operate and be profitable, even before you open the doors.
This model needs to state and show the following:
* What type of business are you in?
* What you are selling or service you are providing?
* How will you sell this product or service?
* Expenses associated with operating the company, manufacturing costs, salaries, all overhead expenditures.
* Who is your market, who are you going to sell to?
* How are you going to reach your market, ads, referrals, store front?
* When do you expect to be profitable, a time line showing this.
* How much money do you require, where will it be spent, and is there a return for investors?
With this business model, you can then seek out funding via a few different choices:
* Banks and main stream lending.
* Investors, capital investors, companies and individuals looking to invest money to make a return on their investment. This is why showing when you will be profitable and a rate of return for investors in your model is important.
* Crowdfunding and P2P (peer-to-peer) lending options.
If you visit one of the many crowdfunding web sites, you will see some good examples of how new business owners are presenting their products and visions, in a way to entice investors and everyday people to put money into their new ventures.
These crowd funded business are a good way to get over the hurdle of getting a new business start-up money, and not having a proven track record of success and profits.
There also are guarantor loans as an option to fund a start-up company. You or someone you know, guarantees the loan for the company.
This allows the company to get the funding it needs, again without a record of sales or profits.
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