Running a small business or startup can be a rewarding endeavor, but it’s not without its challenges. For many aspiring entrepreneurs, the biggest hurdle to achieving their dreams of business ownership is obtaining financing. Even businesses that don’t need specialized equipment or workspace still have basic installation needs and resources.
Fortunately, there are plenty of options available for those who want to get the job done. Here are nine strategies for financing your small business and getting the best possible start.
Improve your credit score
Securing traditional forms of financing relies heavily on a solid credit history, which is summed up in your credit score. Depending on the type of business you’re starting and your legal structure, your personal credit score could be the key indicator of whether or not you get financing through traditional channels. The better your credit score, the more options you have.
It is important to note that having bad credit is not a deciding factor for financing. Many people with less than perfect credit Apply for Montana Capital Bad Credit Loans with great success. However, it is always worth focusing on targeted improvements.
Start by reviewing your credit report and reporting any negative items that affect your score. Things like collections, late payments, bankruptcy, and difficult inquiries (i.e. previous loan applications) can negatively impact your score. Use it as a guide to make strategic improvements. Dispute any negative items that no longer belong in your report and work to pay off your existing debts.
Create a financial plan
First and foremost, you need to create a financial plan. Whether you opt for a traditional loan or use your personal finances to finance your business, your financial plan will serve as a starting point. The exercise of developing a financial plan will also help you gain perspective on your business, encouraging you to research the costs involved for a more realistic idea of the journey ahead.
A financial plan is usually contained as part of an overall business plan. This document should outline your operational costs, a proposed sales forecast, pricing, financial goals, and KPIs. It is essential to take your time with this process and include accurate data.
Your financial plan may not be set in stone. Once your business is up and running, you may determine that some items you thought you needed are unnecessary or some tools could revolutionize your business. However, most financial institutions require a realistic financial plan before approving financing.
Apply for local grant programs
Before applying for funding, research local grant programs to determine your eligibility. Many government and non-profit grants are available for entrepreneurs, often requiring nothing more than an application outlining your business plan, costs, goals, and passion for your project.
It should be noted that applying for grants can be time-consuming and competitive. You may also be required to match financing. However, it is worth exploring this option and determining if there are niche grant options to support your industry or personal identifiers, such as grants for minorities, veterans, or women.
Learn to start
Startup is an art in the business world, which relies on the business owner to save money and start without a budget. Steve Jobs and Steve Wozniak are legendary examples of bootstrappers who launched Apple in a garage.
Outside of developed countries, bootstrap is the norm. In regions rich in entrepreneurs like Latin America, bank loans and investors are hard to come by. These driven individuals personally fund their businesses, get creative with their guerrilla marketing efforts, and take their time to succeed.
Change your mindset from instant gratification to a mindset of hard work and dedication. Feed your networks, explore your low-cost options, and get started before you’re financially ready.
Crowdsourcing and social finance is an incredible innovation that not only helps secure funding, but effectively validates your business idea. The key to crowdsourcing is understanding your financial needs and asking for donations in exchange for an offer or pre-sale of your concept.
For example, let’s say you’re trying to start a sushi business in your neighborhood. You’ve organized a few pop-up events, created a business structure, and connected with the community. To make your business a reality, you need a food truck, so you crowdsource. You start a multi-level campaign where people offer money in exchange for a service to be provided at the end of the campaign. Lower level donors might receive a specialty sushi roll, while higher level donors will receive a tray. Over time, the financial goal is reached, the truck is purchased and the promises are kept.
Think about investors
Presenting your financial plan to investors is another option for obtaining financing. The advantage of this option is that you usually have access to a mentor who has industry experience and knowledge. The downside is that you give up some control of your business and have to accept comments and suggestions from others.
Finding investors can be difficult. As with crowdsourcing, validating your idea, calculating the numbers and nurturing your networks are essential to success.
Create a scaling plan
Scaling and startup go hand in hand. Many new entrepreneurs make the mistake of going big when starting their business. Creating a scaling plan will help you work within your resource limits without overstretching yourself when creating an expansion plan.
For example, if you are starting an ATV tour business, buying 10 new ATVs on day one would be a mistake. With scaling, you’d buy maybe five, then invest more once your bookings increase and you turn away customers.
Never underestimate the power of bartering your services. For example, if you are a roofer and need your website for your new roofing business, you can offer this service in exchange for web development.
Bartering is a great way to connect with other small business owners and build word of mouth referrals.
Reinvest in your business
Finally, create a plan to reinvest in your business. Set a percentage of your profits that will go directly to the company to make improvements and extensions. For example, you can determine that 10% of your profits go directly to future marketing efforts to help you grow your business. As these marketing efforts pay off, that 10% will grow and create exponential value.
Through these strategies, you can fund your business in a variety of ways, conventional or otherwise. Take it easy and make a financial plan before you get started.
This article does not necessarily reflect the views of the editors or management of EconoTimes