Nowadays, it has been observed that new entrepreneurs used to believe on the myth that they only require a minimum half million dollars for starting the business. The process of starting a new venture with limited budget without the involvement of investors is termed as bootstrapping. Also, it is the only way to continue starting new business, if you don’t want to spend months in preparing sales pitch and delivery circuit. Additionally, through bootstrapping there is neither risk nor pressure of an investor being your boss who will be guessing your each move. Borrowing money under right situation can give the boost to small business which it needs to reach its next milestone or to get off the ground. There are several options available to small business owners’ seeking out loans and credit, but it’s essential to know which finance lending option is better for your business and for demonstrating that your small business is a good risk, what information you will need.
It has been observed that start-up business mainly rely on personal loans from friends, family or borrow against credit cards for funding their ventures. Business loans as well as lines of credit are easier to obtain more established businesses, as they have a track record of management and cash flow to report. Still several other small businesses look Private equity, Venture capital, Seed capital, Growth capital, Working capital and Mezzanine financing as an alternative of traditional bank loans options. Below are some ways that may help you in determining the type of lending that suits your small business at any development stage. A common list of startup practices done by new entrepreneurs in managing the ironic pain and without taking help of investors started new venture with limited budget are discussed below:
Business Credit Cards
If your business is incorporated, get a credit card for it in order to keep finances of business and personal expenses separate. As this will help you in keeping record of your business expenditure and personal ones by categorizing expenses, and will help in you in establishing good credit history at the time when your business needs urgent funding. But always make sure that long-running balance along with high interest rates might eat profits of your firm. And your credits can be damaged, if you fall behind on payments. Always restrict your card usage to important business functions, as well as keep your balance below or at 30% of your credit limit.
Borrow From Friends or Family
Most of the start-up business owners look for family or friends for initial funding of their business without any established business history. So, its better look for those friends or family members who can give you cash and business guidance as well. Prepare a business plan and ask for enough funds that take the business to the next level and it will be easy to lend money again if you prove him that you will repay on time, if in case you need it later.
Line Of Credit
For ongoing needs such as inventory management or seasonal payroll, a line of credit many proffer an open-ended access to cash if your small business has uneven cash flow. You can still qualify for the full requested amount, and then one can borrow as well as repay funds on the time. For long-term investments such as property purchase or making larger equipment purchase, then a line of credit is not appropriate. So, better be prepared for submitting financial details of business plus tax returns and information of bank account for securing the credit. Furthermore, yearly financial review is also required.
Stick To a Business Domain
It is not good to start a new venture in a place where one has no prior experience although it proves to have great potential. Every business comes with unwritten rules and if you lack any inside business knowledge, it will cost you a lot. It has been seen that good connections can be done at low prices.
Find Team Members to Work
People who are working with you should understand the startup failure rather than expecting money up front. It is quite expensive and difficult to manage contracts as well as employees and entrepreneurs who have just started a new venture are not good in any of these things. In certain cases, equity proves to be best guarantee of focus and commitment.
Defer Your Urge to Find Office Space
Today, team members of remote startup are the norm and may be very creative with video, smart phones as well as speedy internet. Also, office spaces costs cash up front, need equipment, staffing as well as travel expenses and through a good website, your venture may look big like of any competitor.
Moreover, small business lenders give loan to businesses that was operating profitably for continuous two years. A broad range of documents are required to be provided to the small business owners, so that the lender can easily analyze cash flow as well as the ability of company to repay loan along with interest. Also, first thing you should do is to calculate the actual financing cost, then project your monthly cash flow accordingly in order to see at what stage you might require need extra cash. And always remember that lenders may not provide 100% finance. Consider whether the funds borrowed by you will help in generating more revenue in the coming years or not because if not, then you may be better off waiting. Rather leverage any capital infusion through which you can get into sales and marketing, with the aim of generating cash for the business in the future. And in this way, you may not require to borrow again.