Financing your small business can be one of the
biggest challenges you can face as you began your role as an aspiring business
owner. Unfortunately, there is no easy answer as to where you can find funding
or if your business will even be successful. However, learning to understand
the data and understanding simple funding techniques can also be an advantage
to you. For example, I set out to see some of today’s recommendations for
funding a business, and believe me when I tell the shock and awe value was
paramount. While I was searching the glorious information highway for the best
options to fund a business; I managed to run across a very interesting article
that read one option would be for the new and aspiring business owner, is to use
a credit card. So, I began to read a little more because most credit cards
charge an enormous rate of interest and this method of funding well, it is just
foolish and it is a key element to bad business.
This brings me to a question that is asked over and
over and over, “how do I fund my new business?”
The process of starting your own business is
stressful enough but when you throw money, your life savings, or your livelihood
into the mix, you really start to think “is this something I want to do?” the
best way to evaluate a decision of this magnitude is to look at all the
parameters surrounding your life, the goals you have set for yourself, and be realistic
about the outcome. With that said you are still the only one that can make this
decision that is unless you’re married then your wife will, but untimely it is you
or your better half if there is one that can make that decision and no one else.
The worst part of this evolution of
business is when you began second guessing yourself or your skills in business
or product development, I would recommend stopping and taking a step back and evaluate
exactly what it is you want to achieve.
There are many different variables available to you
that will help you make this decision and of course use your common sense. For example,
if you are unemployed living off of your savings and you have decided to start
your own business with the funds you live off of, this is probably going to
turn out badly for you. Some other factors that you can use to answer questions
for you is market research, utilizing market research before taking the plunge
to open your own business can also help you by giving you insight on how stable
the market is and if there is enough room for your business to grow, this is
known as market share.
I know maybe you have passion but without knowledge
that passion is going to turn into bankruptcy, especially if you are unaware of
what basic business terms mean, such as market share, market research,
factoring, the SBA, and a business plan. Nevertheless, there is always good
news at the end of a rainbow, you just have to put the time in to find that
rainbow and began learning what it is that it all means, one more thing when
you find out the secret of business please feel free to share. When I first
started this blog post and article for LinkedIn it was about how to fund your
new business and with all the crazy information that seems to be easy for you
to get started, the old term if it is too good to be true than it most likely
is. Well let’s just say we should take that for what it is, the scams are real
and no one is going to hand a new business thousands of dollars without a
credit check that is unless you have to pay that back in a few days. I guess
what I am really trying to say is be cautious of what you read about funding it
is the one thing every new and aspiring business owner wants and some who are
not business owners. I assure that I am not giving you my money to fund your
business just a little advice, maybe the transition will be easier from worker
and follower to leader and owner.
I have found an easier way to weave out the ideas
that are just bad and shouldn’t apply especially to funding a business. First of
all, let’s really think about what is exactly entailed in the starting of a
business, only from a financial point of view. I am going to revisit this insane
idea of using a credit card briefly and the real damage that it not only will
do but is going to do if you were to peruse this avenue as a funding option.
To begin operation as a new business you’ve already
thought of your product idea, we shall start here…so, you decide to have your
product manufactured and you choose to do so overseas, now you must choose a
platform to sell your product, I mean after all it’s the next big thing, so you
hop in your car and run to make your pitches to box stores, conveniences
stores, local retailers, after all you have your product in production as you
are trying to get them sold, but what is the common variable about everything
that is currently taking place.
For starters, you probably didn’t think about how
this was going to work when you began production of your product or a few words
called tariffs and duties, now that you are producing your product overseas you
will need to embrace our wonderful government. While, you may be consider just
another buyer from the internet, if you’re lucky, but you still had to spend
thousands of dollars off that awesome rate credit card that everyone in the financial
community is going to tell you to hurry up and pay back before your personal
credit takes a hit. Now right about now you’re probably thinking that I can buy
sometime because that credit card is in my business name and I am an LLC or a
C-corporation, but if you read the fine print you most likely unless your
business has been in business with a worthy income for two or more years had to
personally guarantee that credit card against your own personal credit.
While it is equally important not to want to operate
your business with this kind of thinking, you also want to make sure that you evaluate
your situation and what is best for you, let me tell you 19-23% is no good for
anyone, personally or as a business. Should always remember some basic key
rules about establishing your business as well, when you first start out with
your business creditors are going to look at your most recent hard pulls on
your credit report, more than four in a year does damage and lowers your
chances each time you apply, save the hard pulls for the important stuff, not
for getting started or business operations.
You are probably asking yourself what are the
options that I have available to me to help me get my business funded so I
generate revenue.
My go to funding is always the Small Business Administration;
there are many reasons as to why you would want to choose the SBA over any
other lending source. First of all, in order for you to be considered you have
to create your road map….(I.e. business plan). A business plan lets you come up with ideas on
how you can see your business evolving in the future, forecasting profits from
your business, and yes my favorite you should be able to give a detailed analysis
of your market research to show there is room within the market for your
business.
However, the SBA is not always the most generous
people when it comes to living the American dream and then you have to find other
ways to fund your business. I classify these in my tool box as my out of the
box specials. These out of the box specials usually are very eager to work with
you and you don’t have to have a long business history and there is a plus to
this out of the box funding, factoring will give you a quick ROI or return on
your investment.
Factoring companies work with almost everyone and
some require a basic personal credit score while others only care about the
merits of the invoices. Let’s be honest about this too shall we, my personal
credit score shouldn’t hold any weight on the invoice that I am sending a
factoring company, the only thing they should care about is the invoice. So,
who does a factoring company work with and how can this be beneficial to me gaining
financial support for my business. Factoring has many benefits, the first
benefit is you can unload the invoices to the factor and often times you get
working capital in the neighborhood of 75%-90% of your invoices, while other
will only give you that smooth 80% for working capital. However, you must at
this point already be working to move your product and then you have to give
the customer what is known as net terms. Although practicing in net terms can
be risky, there are some businesses out there who will only work with business
credit.
The other side of factoring is that most factoring
companies have their own collection centers and will work diligently to obtain
the funds from the invoices that they have credited toward you. While factoring
is a great out of the box tool to use to regain some of your capital to keep
your business growing and moving forward, it really doesn’t answer the question
on how to fund your business.
So, I figure the best way to break this down for you
is understanding a few key factors about what it takes to organize a business plan
and what lenders are looking for. This is all summed up in a few key words,
information about your business and your knowledge about your industry,
basically the purpose for the business plan is for the lender to see that you-
Ø Have
some working knowledge of business.
Ø That
you understand the industry you’re trying to move into.
Ø You
have the ability to run a business by producing and forecasting profit reports
and research data.
These same principles apply for everyone, if your
business was up and running I am quite sure that you wouldn’t just hire the
next guy off the street without verification of their skill. The one thing that
will always remain the same, you cannot start a business without funding, and
if your personal credit score is damaged or you’ve made an irrational decision to
start a business and quit your job, you will surely find yourself in a perilous
position pretty quick. These are the facts; lenders don’t lend to the
unemployed and if you’ve not figured out how to write a business plan, step
back go get your job back and began taking business classes. Everything is
possible if you are willing to gain the knowledge and make the sacrifice for it
but why start a battle off in a losing position.
Nevertheless, here are a few bullet points and links
if I have done this correctly for you to find out more information about
funding your business.
Ø Self-Finance
Ø Small
Business Administration
Ø Micro
Loan
Ø Bank
Loan
Ø Factoring
Ø Personal
savings
It is most likely just me but I would say start with
that last link first and remember that the SBA is more than a lending place to
help you get started. The SBA is a place where you can find a lot of useful information
and resources to help you learn how to use those resources.
-Anthony Morgan
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