Log InJoin 

How To Get Money To Start A Small Business

How To Get Money To Start A Small Business

Entrepreneurship can be a great way to take control of your future and work hard at an endeavor you enjoy. There are a lot of factors that determine whether or not a small business will be successful but one of the most common reasons for failure is not having sufficient starting capital. Bills start coming in and sales may not be enough to cover expenses which puts pressure on cash flow. Loans will often be necessary to offset cash flow shortfalls and knowing how to get money to start a small business is often crucial to success.

Create a Business Plan

It will be virtually impossible to get any type of small business loan without a professionally written thoroughly vetted business plan. Business plans not only cover marketing budgets and anticipated breakeven points but also outline all necessary funding to cover expenses and facilitate growth. Any financial institution looking to extend a small business loan will critically examine the business plan to make sure all contingencies have been planned for and that the business owner is properly prepared.

Calculate Financial Needs

A thorough business plan will be able to provide incredibly accurate information for determining a small businesses' financial means. It will take into account regulatory and licensing requirements, monthly fixed and variable expenses, necessary starting capital to cover a minimum of two years of operations and expected date of profitability. Initial starting capital should always include a margin of safety based on a worst-case scenario. If all numbers point to needing $250,000 to get up and running then the total capital required should be $300,000 just to be safe.

Evaluate Financing Options

There are number of different resources available to small business owners when trying to obtain funding. From small business loans at a local bank or credit union to maxing out credit cards, the only limitation is creativity. Family and friends can be an excellent resource for financing and support but keep in mind you place personal relationships at risk if the business doesn't succeed. The Small Business Administration offers loans as well as training materials and advice to lower the learning curve and avoid costly mistakes. There are also specific government grants for women and minority business owners which may be helpful by providing additional financial resources. Home owners also have the option of using a home equity line of credit to fund a small business assuming there are no limitations on how the credit is used.

Improve Your Credit Score

Many loans options, whether they are personal or for business, will take into account an individual consumer's credit history and credit score. A credit score is a single number representation a person's financial history and responsibility when dealing with money. The higher a credit score is the more responsible a business owner will appear which will help in obtaining small business loans at better interest rates. The assumption is that a person who is responsible with their own finances is likely to be responsible managing a small business loan.

Image by: Joel Kramer