Funding a new business can require the experimentation of a science and the delicacy of an art. Too little money and the business won't get off the ground. Too much can result in a myriad of problems, not the least of which is a tendency toward waste. Getting the funding just right can be difficult but beautiful.
Startup funding is available at a variety of institutions. But new business owners often start with people they know. Parents and siblings, best friends and ex-friends have funded countless new companies. The results have been mixed. If the business succeeds and the funding is repaid in a timely manner, families remain close and friends don't become ex-friends. If the business succeeds but the funding is not repaid due to oversight or laziness on the part of the business owner, things can get dicey. If the business fails, relationships can, too.
A safer source of startup funding-at least where personal relationships are concerned-is the new business owner's own funds. Savings accounts, if healthy, might be the best place to go in search of money. But that could leave the owner without anything to fall back on if the business doesn't do well. Experts recommend that a new business owner should keep at least six months' worth of living expenses in a savings account. So tapping into a personal savings account could tap out the new business owner.
The next place to look for startup funding is the local bank. If the new business owner already has an established relationship with the bank-like a healthy bank account and a well-managed credit card-creating a business relationship may be a simple process. But in times of tight credit, banks are less willing to take a chance on new businesses, especially if the owner/operator is young and/or inexperienced. For those with the experience to satisfy a bank lender, there are still drawbacks to a regular bank loan. Interest rates may be high. Collateral may be required. The bank may require the Small Business Administration to guarantee the loan, which opens the borrower to a whole new round of requirements and approval. But once a bank loan is secured and the funding is received, the new business can get going without many other restrictions as long as he or she makes the loan payments on time.
Vendor financing is another option for startup funding. This is usually only for equipment purchases and comes in the guise of a lease. But once the lease is paid off, the business owner usually is given an opportunity to purchase the equipment for a small pay-off amount. If the business is a sole proprietorship that requires only a few pieces of equipment-no employees or other peripheral expenses-then vendor financing might be the answer.
Finally, funding for a new business could be acquired through credit cards. But this should be considered only as a last resort. Interest rates on credit cards are unforgiving. Fees and penalties can add to the balance to a point where the "loan" is almost impossible to repay. And credit cards are terribly easy to use. New credit card rules, however, may make it more difficult to lose control of card use, but that remains to be seen.
The bottom line is that gaining business or corporate credit takes thought and planning on the part of the new business owner. It's important for a potential borrower to research and understand all of the options available.
Corporate Credit Concepts specializes in Startup Funding. For more information about Startup Funding and how it might benefit your business, please CLICK HERE for a free phone consultation.