Raising sufficient capital is one of the main barriers to starting a new business. Some businesses are able to launch with little or no funding but most need some type of loan in order to get started. For instance, a service provider can possibly start operations with minimal capital but a brick and mortar retail establishment will need to pay for the storefront, equipment and the initial inventory.
Preparation is key
When you go out to ask for funding, anticipate some pointed questions. Investors and lenders will want to know you are serious about your business concept and have a solid strategy in place. You’ll likely be asked about future revenue, the collateral you can provide and your own personal business and borrowing background. Well-kept accounting records can be a big advantage when having these conversations since you’ll easily be able to chart and forecast costs and revenue.
Understand the agreement
It’s very important to thoroughly read the terms and conditions before accepting any loan. Some lenders include the stipulation that they can call in the balance of a loan at anytime. This is rare and normally reserved for risky borrowers. Still, it is always a good idea to know what you are getting yourself into before indebting yourself to a lender.
Interest or equity?
In addition to understanding the terms of the loan, you’ll also need to consider the cost of investment. Investors and lenders don’t provide funding without expecting something in return. You’ll likely need to pay interest or give equity in your company. Borrowing creates an obligation, so consider which commitment will be easiest for you to manage.
Securing funding may seem daunting but it can make launching a business much easier. Once the money is in the bank, you are free to focus on nurturing your idea into a successful business.
Read to the Xero Small Business Guide “How to Raise Money for Your Business: Part I” to learn more about securing funding for your company.