Small Business Financing
No matter what you’re planning to sell, you won’t be able to start a business with no financing. Stock and equipment costs money, and at some point you’re going to have to secure some financing to launch your business. If your credit history isn’t looking too great or the whole prospect of understanding finance seems daunting, then this post is for you. Here are some of the most commonly purported myths about small business financing which you need to ignore.
The first big myth is that obtaining a small business loan is one of the hardest things you’ll do in the course of the venture. I think this myth was created by people who love the idea of running a business, but aren’t prepared to put in the work that’s required. It’s true that obtaining a loan to start a business is nothing trivial or easy. However, it’s certainly not impossible! As long as you do a little research and guard against the challenges that come with the application process, securing a small business loan can be incredibly easy. These can vary depending on the industry you’re targeting and how much money you’re looking to borrow. However, if you have an answer for everything and all the necessary documents, you’ll come off as a professional and safe entity to invest in. Here’s where to learn more about the challenges of small business loans.
Another common myth is that you have to have impeccable credit to have any hope at securing a business loan. This is a very dated attitude, which has held back countless would-be entrepreneurs. If you had a dismal credit score a decade or two ago, then it would certainly hold you back from getting the financing you needed. However, it’s now 2016, and the business lending environment has changed a lot. With the range of alternative financing options, bad credit is nowhere near the crutch it used to be. You might be interested in peer-to-peer lending, where other businesses and individuals can pledge money to invest in your start-up. Other options include invoice financing, which draws on the capital trapped in outstanding invoices. If this sounds like something that fits your situation, learn more about invoice financing. However you secure your funds, don’t think that a bad credit score is the end to all your dreams of running a business.
If you skipped over that last point, then you may lean too far on the other side of the fence. With all the alternative financing options out there, some people have come to believe that banks are the worst choice of lenders out there. A traditional loan may well be the worst choice you can make. However, this is a variable and not a rule. If you’ve already had your business established for some time, and you’re looking to expand at a steady, moderate pace, then a regular bank loan could in fact be the best option. By the same token, if you’re running a completely new venture and you need to grow a lot in a short space of time, then choosing a traditional loan could end up limiting your growth, rather than bolstering it. It all depends on the industry you’re targeting, the risk involved in your business plan, and how rapidly you want to expand. Just do your homework!
The final myth about business financing is that it hinges heavily on how solid your business plan is. This is still an ongoing debate, with many different arguments and perspectives. If you ask me though, the position of a traditional business plan in a loan application is a little dated. Sure, there are many banks out there who will still want to look at your business plan and projections.
However, online lenders and pretty much all the non-conventional alternatives don’t care. They’ll still want to hear a little about your plan, but you won’t have to do anything near what you would for pitching yourself to a bank. Of course, this isn’t an excuse to have absolutely no business plan whatsoever! Anticipating your growth and setting measurable goals is an absolute necessity if you want your business to get anywhere. If you want to go with a traditional bank loan, then make sure yours is free of any holes. If you’re going with an alternative, do it anyway!
As you go ahead with trying to secure funding for your business, make sure you dispel all of these myths. And once you secure the funding you need, be sure you open separate personal and business checking accounts so you can keep track of all business transactions and stay on budget. Business financing is dry and often complicated, but finding the best for you and managing finances doesn’t have to be that hard.
Featured Image: Wikimedia Commons