When you are trying to get funding for your business through loans or investors, there are quite a few variables to think about. Today we'll cover a few of the big ones here and now.
Funding Tip #1: Funding needs should be clear, well planned, and thoroughly detailed.
The meaning here is quite simple. If you are vague and unclear about what it is you need funding for, your chances of getting the funding are close to nil. For the sake of your business, and for the sake of getting funding, it's important to know exactly how you plan to use the money and how using the money will benefit your business. Also, it is important to know clearly how the bank or investor will get a return on their investment.
Funding Tip #2: Collateral is Required.
Banks can't lend money to startups that don't have anything to pledge as collateral. Collateral could be inventory, equipment, or other business assets.
Funding Tip #3: Lenders like personal guarantees.
A personal guarantee is like a secondary collateral for a loan in the bank's eyes. Providing a personal guarantee is required for many loans, and will improve your chances of getting many others.
Funding Tip #4: Outside investors aren't always the best answer.
A lot of people think about angel investors and venture capitalists with high hopes, but getting funding from outside investors has drawbacks too. For one thing, by using "equity funding" you are selling part of your business. In other words, you don't own the whole thing anymore. A lot of people fail to realize this, and it has important implications that you shouldn't ignore. For this and other reasons, funding through debt can sometimes be favorable for small businesses. Obviously caution must be taken when using debt as funding, too, but the big advantage is that you maintain control and ownership of your own company.
Funding Tip #5: The most common funding sources for startups are "inside" jobs.
When starting out, most new businesses rely on personal savings and personal credit. Some startups start with personal credit cards, others with home equity loans or home equity lines of credit. In any of these cases, the person starting the business is taking on substantial risk. This isn't necessarily bad in and of itself, but do remember this:
STARTING with personal credit is one thing, CONTINUING with it when you no longer need to is something else entirely.
It's one thing if you have to lean on your personal credit when you are just starting out, but once your business begins to stand on its own two feet it should start depending on its own credit too.
Trevana Properties is a placement company working with a variety of hedge funds, REIT's, commercial banks, specialty boutique lenders, private investors and other funding sources not widely known to the general public.