Finding money is the primary concern of most budding business owners, and this also has to be one of the most difficult tasks for the new business owner. If you have already examined the costs of starting a business, and if you have already done your market research, you should already have a general idea of how much running the business will cost versus how much you will earn. If the start up costs are higher than the amount of money that you have readily available, and more than you will be able to earn immediately after you open your doors, you need to take a step back and figure out how you will be raising the difference.
The Problem
Many commercial lending institutions like banks shy away from start up funding because there is such a high risk of failure; banks want to see a solid credit history and previous successes under your belt. That is fine if this is your third or fourth successful new business venture, but what about the newbie? This is how many small businesses find themselves between the proverbial rock and a hard place: the bank requires a solid business history before lending them any money, but how do you build a solid financial and credit history in business if no one will lend you any money? What can the entrepreneur in search of funding options do?
Considerations
Are your needs short- or long-term?
When can you expect to pay back the potential loan?
Do you need all the money now, or could you handle installments?
Is this money for operational needs, or for actual assets?
Are you willing to be the personal guarantor for the loan?
The Solution:
1.Look to smaller lenders. Try to find a small, local bank that has a good reputation for small business loans; ask around in your business and personal network for recommendations. Mergers and consolidations have forced many of the smaller banks to take more risks in search of customers, forcing those banks to take chances that they would have previously turned up their noses at. The Small Business Administration publishes an annual report on commercial banks lending performance with small businesses.
2.Some banks offer loans through the Small Business Administration. Talk to your loan officer about SBA loans, but remember that there is currently some funding stagnation going on with SBA loans, which means that at a time when loan requests are at an all-time high, there is not that much money being spread around. Getting an SBA loan is slowly becoming more and more difficult.
3.You could raise the money yourself. Consider taking out a second mortgage or selling some of your possessions. Also consider borrowing the money from friends and family.
4.Consider taking on partners and investors. Equity financing means selling partial ownership of your company to investors in exchange for cash; investors assume most of the risk but if the business succeeds the investor will receive much more money than typical interest rates would allow.
5.Consider seeking out venture capital firms that handle start ups.
6.Consider state economic development pools or seeking out funds from the city or county.
7.Other alternatives: debt capital, cash flow financing, asset-based financing, receivables financing.
Bad Credit Loan Sources
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