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WAYS
TO SECURE YOUR BUSINESS SEED MONEY
A
new
business can cost you money before it makes you money, so you have
to have a plan as to how you’re going to finance your new endeavor. You
not only have to determine what the start-up costs will be for your
particular venture, you also have to figure out how you’re going to pay
your own personal bills while you’re building your business. Before you
can go looking for money, you need to quantify how much you’ll
need. Come up with a realistic number not an optimistic
number. Be honest with yourself and don’t let your enthusiasm
cloud your common sense. Itemize all your anticipated business
expenses, add a cushion, and then check with a professional advisor who
is familiar with whatever type of business you plan on having to see if
you are on target. Once you have your projected business costs
nailed down, figure out how much you will need to keep your household
going while your business gets off the ground. Remember, it usually
takes some time – often a year or more – before you actually make money
at a new business.
Some aspiring business
owners consider borrowing against their retirement, tapping into their
investments, using low interest credit cards or borrowing from family
or friends to finance their start-up. But be careful, all of
these options have consequences so make sure you know what you are
getting into. And if you do decide to have someone you know help
you out financially, put your agreement in writing. You should
have a contract - even if you’re borrowing from your mother! Set
out the terms and conditions, what the interest and payback period will
be, and what if any say the person lending you the money will have in
how you spend it. It is almost always better to borrow the money
than to give someone an ownership interest in your business. This
is your new business and the more control you have the better! .
Getting
a business loan for your new company isn’t always easy, and when yours
is a home-based business the challenge is even greater. Banks
don't always take home-based businesses seriously, but financing is
available if you know where to look and you can provide the right
information. For example:
- Make sure you know your competition and
focus on how you will be different or better. Sell your idea
and yourself!
- Write a solid business plan, no matter how
simple your business idea may be.
Potential lenders are going to want to see facts, figures and
projections on profitability. It doesn't need to be fancy, but it
does need to be clear.
- Demonstrate your product or service, and
share samples of marketing material.
Before you make your pitch, do a name search to make sure you aren’t
infringing on another company’s name. Have an attorney add the
appropriate disclaimers or check for wording that might later translate
into unnecessary legal liability. Lender's want to know you are
legally protecting yourself.
Banks
that
give small business loans are a good resource. The SBA
doesn’t issue loans directly, but they do guarantee loans given by
private lenders. [ Link
to SBA ]
Some banks, government organizations and business groups offer
microloans – which are small loans generally between $100 and $35,000
dollars. Microloans are usually based on character and management
ability rather than on an established credit history. In the
start-up phase of a business you almost always have to give a
personal guaranty or collateral for a business loan - such as pledging
equity in your home. That’s why sometimes new business owners opt
to tap into a home equity line of credit but you don’t build business
credit that way! Talk to a small business banker and your
financial advisor. And of course, read all the fine print on any
loan document or contract carefully. There are lawyers out there
who specialize in this area, and it’s a good idea to have them check
things out for you.
Some colleges and universities offer
financial support to entrepreneurs through their small business and
entrepreneurial centers. There are also many different types of grants.
You need to know though that grant requirements are pretty strenuous,
and there’s a lot of competition for small and home-based business
grants. Angel investors are usually looking to invest large
sums of money. They will want equity in your company and will typically
have a say in how you run it. They also may demand your business
be set up as a particular type of entity, such as a C corporation.
Although
having bad credit will definitely make borrowing money more
challenging, there is still a chance you can get a loan even with a bad
personal credit score or history. If you have a bad credit history or
score, separate your personal credit from your business credit. Get a
tax ID and form a legal entity for your business to start building your
business's credit. If can show you are paying your business bills on
time, suppliers and vendors may allow you to open small credit lines
with them which in turn can be a stepping stone to larger business
loans. You can check your business credit history at Experian, Equifax
and Dun & Bradstreet. There are also credit restoration
services that will work with you to fix your credit and secure the
money you need to make your entrepreneurial dream come true!
Copyright
2009 - Law
Office of Gina M. Ghioldi, P.C.
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