There are a variety of ways to fund your business. Depending upon the product that you want to sell and its market value, you can choose investors. You can take business credit cards, crowdfunding sources, commercial loans, loans against assets, put your home on a lease and collect cash, sell assets, ask friends or family, contact angel investors, venture capitalists, use the method of advance orders, use grants if you have a scientifically patented product, start selling your products before you launch them, and there are many other creative avenues to fund your business.
Once the capital comes in, it becomes your challenge to keep rolling the money and see towards the progress of your business. There are also many online lenders and funding option that can give you small amounts as and when needed for a very little interest. You can also start a small side business that can fund your future business.
Understand various modes of financing available
You can participate in business contests, join incubator programs and if you are roped in, you must consider yourself lucky as competition for all these programs is very fierce. Another way to seed funding money is to do the barter way. Swap your products with services. If you are a retailer, you can also get some financing from your wholesaler whose products you sell. Many micro financing companies fund small scale businesses. You can also look at government funds for business. Many online lenders are making some funds available to online users after scanning the scope and scalability of that business.
You can also choose to bootstrap your business while you are still working and doing a full-time job and learning to start a business. Bootstrapping can be very challenging, nevertheless, you will have full control over all the business, strategic, operational, and financial decisions that you make.
Determine your Financing needs
You can make use of any of these modes of financing depending upon the needs of your business. Not just during the start up phase but also during the stage when you want to branch out your business and expand it. At any point of time if your business is short of supplies, then you can avail a financial help even at this stage. You must be able to correctly estimate how much financial backing you need before asking for a loan. Determine your pay back capacity and only then choose a funding option. Banks and venture capitalists usually give you very less time to recover their loan payment.
Plan your personal finances
You have to start learning to live below your means, cut down all unnecessary personal expenses and forget luxuries for a while, till you make the cut. If your family is dependent on you, then this becomes a greater challenge as they too will have to curb all their expenses along with yours. You have to spend only for what you and your family essentially needs. Keep your bills to a minimal and buy stuff if and only if the need arises. You can forget fun and games for sometime till you start making a lot of money from your start up.
All the shopping sprees and travelling needs to be curbed. Also, your travelling can also become cheap as you must use cheap mode of transportation to travel for your business or even otherwise. You can also learn grooming tips and make yourself look presentable without having to spend on branded clothes and expensive spa treatments. This way, you will have cash handy in reserve during tough times. You can also curb expenses by renting out your condo to people on the weekends and earn extra cash. You can also start a small online or offline business service and generate many sources of income.
Prepare for the Financial Institutions
There is a certain evaluation process involved when you want to approach financial institutions. Get your income papers, bank statements, any property papers, tax papers ready before you want to approach a financing firm. All your documents will be evaluated to check your capacity to sustain a business and only then loan will be given to you. You need to keep all your documents for at least last three financial years, in order. This might take a week to a month’s time before your request for a loan gets answered.
How banks evaluate your business when you apply for a loan?
They will check your credit history, your financial statements, your income tax returns, and your character as well and then determine if they should sanction a loan for your business. If you are starting a new business for the first time, all your previous financial statements will be evaluated to know your financial standing and your capacity to sustain a business, and only then they will decide to sanction the loan. Your character too plays a vital role here. They will determine if you are reliable or not from the way you approach them and talk to them.
If you have a bad credit history then you will need to have professionals helping you file appropriate papers which can send request on your behalf. Most of the banks blindly reject your loan request, if you have a bad credit history.
What happens when banks approve your business loan?
There are a list of contracts which are signed and paper work that happens when the bank sanctions you the loan. You will get a letter of sanction of the loan along with terms and conditions of repayment specified. The contract of loan agreement happens between you and the bank. You will need to fill in a few documents and forms, such as guarantee deed, registration forms, and other forms and documents to create security.
You will also need to submit documents, like, title deeds, NOC from your creditors, mortgage permissions if needed, etc. As you start using this capital for your business, you will have to submit your progress reports to the bank and they too will visit your business site to check your progress. You will need to show them annual reports, insurance on your assets, etc. All this will be an ongoing process till you repay them the principle amount along with the interest.
You will need to set up a proper cash management and account management system. Your taxation, insurance, and the budgeting of your capital must be intact and up to date so that at any point of time, the bank wants to put your business under scrutiny, you can show them these reports.
Finance is a very sensitive matter of a new business, so be careful about it when searching for how to start a business.