One way to make your small business grow depends on your capacity to raise and acquire the requisite finances. Raising money is the most important and crucial of all the activities concerned with starting a business. This, however, is also the toughest task as many entrepreneurs would already have discovered. It is a process where you need patience and persuasion, but if you have a proper plan and are well informed, raising money for your business need not be all that frustrating an experience.
Where and how to mobilize the money you need
You have to consider several options from where you can obtain finance for your business. Go through all these sources carefully and only then decide which is the best and the most promising source.
Your personal savings
Very often small businesses are born out of personal savings or assets of the owner of the business. There may be other personal resources which the entrepreneur uses to begin operations.
Funds provided by relatives
Friends and relatives are often the private sources which entrepreneurs look toward to for funding their startups. In these cases the money is given by a well wisher, a family member or friend on an interest-free basis or at a minimal interest. This is a big helping hand for the business especially in the initial stage.
Financial institutions and banks
Banks are naturally the most common source of funding and so also are other financial institutions which offer loans. If you are able to show that you can run a sound business and present a perfect proposal with some sort of collateral security obtaining a loan shouldn’t be a problem at all.
Getting venture capital
These are companies that fund companies with promise and potential to grow and in return they ask for an equity or part ownership.
Prepare your business strategy before trying to borrow money
Money lenders to small businesses are few and it is a difficult task convincing financial institutions, banks, or investors to put their money in small businesses. If the bank or investor finds the entrepreneur disorganized and inexperienced, then most often they refuse to extend the loan. One must be extremely well prepared in order to be able to impress the investor and gain his approval. An exact assessment of the money needed has to be made and a date or period of time has to be fixed for repayment. Unprepared requests are considered as risky by banks. Make it a point to check your credit scores, outstanding credit card bills, bad repayment records etc, before approaching the bank or financial institution.
Types of business loans
There are generally two types of business loans – one is the Short Term Loan, which is repaid within one year, and the other is the Long Term Loan. The different types of short term loans are: working capital loans, accounts receivable loans, and lines of credit. Long term loans come with repayment periods of more than one year and are usually less than seven years. Some loans are given for a period up to 25 years, and these are mostly for real estate and equipment loans. Long term loans are mainly given for large scale business expansion, purchase of real estate property, acquisitions etc. Long term loans can be classified into vehicle loans, commercial mortgages, furniture and fixture loans, and loans for equipment.
Prepare a business plan for loan approval
For your loan request to be approved, you have to first prepare a good business plan. This plan should present your company, yourself, your business, and your financial needs to a lender in a very positive manner. Remember, lenders want to give loans, but they will give loans which they know will be repaid. Put forward an accurate picture of your business along with other business details, names of principals, business address, purpose of the loan stating exactly what the loan will be used for, and the amount required – there are extremely good chances of your loan being sanctioned.
The article tells us that one way to make your small business grow depends on your capacity to raise and acquire the requisite finances. Raising money is the most important and crucial of all the activities concerned with starting a business. It is a process where you need patience and persuasion, but if you have a proper plan and are well informed, raising money for your business need not be all that frustrating an experience.