To Arrange Financing for Your Start up Business Loans
Starting up a small business brings a lot hurdles especially when it comes to arrange financing. However, it entirely depends on the source you apply for your small business loan. Therefore, if you plan the specific financial needs of the business then you can decide which route will have to be followed.
Start up is all about making your business idea real that requires a lot of planning especially in terms of financing. To arrange capital for establishing a business is really crucial. Moreover, it can be compared to a road which has a lot of obstacles. Business owners need funds for various aspects like office space or building, purchase of fixed assets and raw material, employees’ salaries, and other expenses. Yet, initially they may take a decision of self funding but they also have to rely on external sources of funding as well.
Family friends and relatives: Apart from self financing an entrepreneur finds it convenient to borrow funds from family and friends. Since they know you personally then there is no need for any credit score approval. Besides, if they have experience related to your relevant fields they can also guide you well. Make sure that the interest rate should be competitive as per the current market and there will be a proper documentation of loan.
Banks and other traditional resources: Banks are the common source that comes to an entrepreneur’s mind while deciding on the external source of financing. However, when it comes lending for start up business loans then banks and traditional finance resources are not quite flexible. They find the entire venture a bit risky as they are certainly concerned about repayment.
Small Business Administration (SBA), U.S.: Since banks and traditional financial institutions are strict about lending money to small business owner for their start up business loan, SBA works as a moderator. Although, SBA (a government federal agency, U.S.) does not lend any money directly. However, it works as a guarantor between a lender and a borrower.
Venture capital: Where banks find giving money to start up business risky venture capital is a source for a business owner to arrange capital. Venture capitalist is an individual or a set of individuals who invest money in a business which they think has a potential to earn profit. They take the risk and invest in a new or risky venture. In addition, they enjoy the partial ownership of a business that also includes managerial decision.
What do banks and other lenders look for:
Business plan: Without a business plan a borrower cannot think of getting finance from any external sources. Business plan is a document which consists financial planning related to the utilization of the loan amount. You can also take an expert’s advice in making business plan for your loan approval.
Credit history: Although, credit history does not really employ in case of new business. However, a lender would certainly be interested to know how you have been dealing with your personal credit.