You have decided to start your business and now you've reached the point where the rubber meets the road. Where will you get the money to finance this project?
We have all heard the stuff about ''No Money Down'' and ''Free Government Money.'' Forget it. In the real world, there is no free lunch for real entrepreneurs.
BUSINESS PLAN FIRST
But before we start discussing realistic sources of financing, it is worth repeating that a clear, concise and well-written business plan is essential. This plan is where you tell your story, and you'll need it when you approach anyone about lending you money or investing in your business.
So let's get to the nitty-gritty of getting the money you need to get started. Here are the most likely sources:
• Your savings. That's right. You will be expected to bring some of your own money to the table. A good rule of thumb is that you should be prepared to finance 20 percent to 30 percent of your start-up costs from your own pocket.
• Family and friends. You gotta love them because they're the folks who believe in you when no one else will. They lend money or invest in your business so that you can live your dream of being an entrepreneur.
However, if you want to stay on good terms with your family and friends, handle your business as business. Write up a document that specifies terms and conditions and make sure that grandma, auntie, uncle, brother, sister or your rich college roommate understand what they are getting into before they loan you a bundle of cash.
• The bank. The bank wants its money back, plus interest. That is the business that banks are in, so your ability to repay must be justified in your loan package.
One of the first things a bank will look at is your personal credit. Therefore, before you go to the bank, or even start the process of preparing a loan request, you want to make sure you know your credit status.
Check your credit report and be sure it is good. This is important because many credit reports have errors. You do not want to be sitting at the bank and have a loan officer find out that there is a problem on your report. You can obtain your report by calling TransUnion, Equifax, TRW or going to their websites.
AT THE BANK
Cash flow from the business and collateral are two other key elements the bank will look at. Also expect to produce personal financial statements and your tax records. And the bank will be looking to see that you have some of your own money involved in the deal.
Good Luck and Happy Business!
