One key to a
successful business start-up and expansion is your ability to obtain and secure
appropriate financing. Raising capital is the most basic of all business
activities. But, as many new entrepreneurs quickly discover, raising capital
may not be easy; in fact, it can be a complex and frustrating process. However,
if you are informed and have planned effectively, raising money for your
business will not be a painful experience.
There are several
sources to consider when looking for financing. It is important to explore all
of your options before making a decision.
Personal savings: The primary source of capital for most new
businesses comes from savings and other forms of personal resources. While
credit cards are often used to finance business needs, there may be better
options available, even for very small loans.
Friends and relatives: Many entrepreneurs look to private
sources such as friends and family when starting out in a business venture.
Often, money is loaned interest free or at a low interest rate, which can be
beneficial when getting started.
Banks and credit unions: The most common source of funding,
banks and credit unions, will provide a loan if you can show that your business
proposal is sound.
Venture capital firms: These firms help very high potential
companies (companies with ability to grow to at least $25 million is gross
revenue) grow in exchange for equity or
partial ownership. If you firm is not National or International in scope
they will have no interest in you.
Borrowing Money
It is often said that
small business people have a difficult time borrowing money. This is not
necessarily true. Banks make money by lending money. However, the inexperience
of many small business owners in financial matters often prompts banks to deny
loan requests. Requesting a loan when you are not properly prepared sends a
signal to your lender. That message is: High Risk!
To be successful in
obtaining a loan, you must be prepared and organized. You must know exactly how
much money you need, why you need it, and how you will pay it back. You must be
able to convince your lender that you are a good credit risk and that will mean
having a good credit score. If your FICO score is below a 680 there is no point
in going to the bank for a business loan.
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