Having a great idea for a new business is only the beginning of the long but rewarding process of starting your own business. As you start to plan the different aspects of your business, you realize that one of the key factors to starting any business is funding that initial time period where you are working but have no revenue rolling in yet.
The amount of money that you will need to have to get started and to bridge that time before money is coming in will vary depending on the type and size of the business you are starting. You may have some money in savings or a retirement plan that you are willing to use to start your company but most people also need to get additional funding. You have two basic ways to get the money you need to start a business. Your choices are borrowing money or fundraising the capital you need. You will want to know more about both options so that you can make a wise decision before beginning a fundraising plan or seeking a loan.
Traditional Borrowing for a New Business
Most small businesses seek their first loan through the Small Business Administration (SBA). The SBA offers assistance in finding low-interest rate loans for startups as well as providing other coaching and mentoring services. Some other small companies apply for a business loan from a bank that they have accounts with or that one of the owners has a history with. These business loans are normally at a reasonable interest rate but not always as low as the SBA loans. The biggest advantage to acquiring a loan in the business name is that it begins the process of building a credit history for the business, much like building a personal credit history. In addition, some loans will offer tax benefits.A Less Traditional Option to Borrow
A Less Traditional Option to Borrow
If your company is unable to obtain a traditional loan, then as the owners, you have the option to secure personal loans and use that money to run the business. If this is the method that you are using to open your business, be certain that you keep detailed records and an accounting of the money to show that you have been paid back.
You don’t want any confusion about the company’s profit or loss when it comes time to pay taxes, and you don’t want to not get paid back for the cash infusion that you loaned the company. On occasion, owners will also use personal credit cards as a way to fund a startup but that usually carries a much higher interest rate than other types of loans. You can also get title loans with no job or get a car title loan with no inspection.
Over the years many businesses have been funded by an outside investor who has nothing really to do with the startup other than as a lender. In other cases, the lender may offer other services or assistance such as introductions or connections in the business world, connections for manufacturing or distribution or some other phase of your business.
It is in the lender’s best interest to see your company becomes profitable as quickly as possible because one of the major terms to the loan would be that he or she is now a part owner of the company. As an owner with a financial interest in the company, many lenders require that they have decision making power within the company to oversee and protect their capital investment.
New Age Fundraising
A newer adaptation for raising capital is crowd funding such as Kickstarter or Indiegogo. This method is about as simple as filling out an online profile for a social media account but it is also likely to raise only a fraction of the funds that a traditional fundraising plan might offer. Crowdfunding also does not carry the same drawback of shared ownership that is common in traditional fundraising.
What You Need For Any Fundraising Plan
Regardless of the type of funding that you are seeking, there are some basic items that you will need to have before asking anyone for money. The most important is a document called a business plan. This plan is a detailed description of your business. It explains what you will do and how you are going to make money doing it. This is the document that an investor will review to determine if they feel that your business is a good risk and worth their investment. A business plan also demonstrated your ability to plan for future growth, prepare for difficult events or slow times in business and your overall ability to manage and run the business in a profitable manner. This is also a good place to document any research you have done about your industry, your potential customer base, any plans for marketing to your specific demographic and research pertaining to sales and profitability of other businesses within the industry.
The Value of Knowing Your Business
The final piece to any successful fundraising plan is your pitch. You need to prepare your pitch to your potential investors. You might even need to have a few versions depending on who you are pitching to at the moment. But what you really need to demonstrate is that you have done the research, you know the industry and you are confident that you can make money in this business. Your confidence and enthusiasm are going to be the final piece that either puts the investor’s mind at ease knowing that you have the drive to make the company work.
If you are lacking those attributes when you talk about the business and what the future holds for it, then the investor will not see your vision or believe that you are a good investment for his or her money. You have a few options to raise the money you need to start your business. But the key to getting a loan, crowdfunding or traditional funding is a good fundraising plan and a strong business plan. Those tools and your confidence will assure all investors that you are a good risk and that you are also a good investment.