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An important question that comes with most new businesses is “How do I finance my business?” Getting enough funding for a new business has never been an easy task. That task becomes even more difficult in tough economic times. Sometimes it can seem like an insurmountable obstacle that you’ll never be able to cross.
The question “how to finance my business” is easy to answer if you already have a business. There are certain avenues that may be open to you that are not available to new businesses. If your business has an established track record of profitability, banks and lending institutions will at least be willing to talk to you about opening a line of credit. Because you have business assets that can be used as collateral, these banks are more willing to consider loaning you money.
However, with new businesses, you have nothing but to present to banks and lending institutions. Based on the failure percentage of new business even in the best of times, most lenders will be unwilling to offer you a solution.
The exception to this is if you can raise enough capital on your own which will reduce the risk to the lending institutions. As long as the lenders are reasonably assured that they will be able to recoup their investment, they may be willing to consider offering you financing for your business.
Another route you may be able to consider is to find private investors who are willing to put money into your venture. While there are many people who are willing to invest in new businesses, it is not always easy to find an investor who is willing to put money into your business.
The first step in the process is to locate investors. Your local Chamber of Commerce may be able to point you in the right direction. You can also check with the Small Business Association. If those don’t yield any results, you can also try searching the internet for investors.
You’ll need a strong business plan if you decide to pursue investor funding. It should be a complete business plan, not just some ideas you’ve jotted down in a notebook. You need to be able to show any potential investors that you’re trying to open a legitimate business, and that you’ve really put thought into how you plan to operate your business.
You should also know that investors want something back for the money they invest. This means that you may have to return the investment with interest. This may be a fixed interest rate, or it may be a percentage of the profit over the term of the investment.
If you have personal assets, you should be able to invest as much as you can afford. If you are unwilling to show your confidence in your business by investing your personal assets, other lenders will be less inclined to consider lending you money.
You might also consider approaching family and friends for money for your business. You can offer the same kind of payback that investors would expect. Make sure they know this is a business investment, and that you intend to get their money back.
The more money you are able to raise on your own, the more likely a bank or investor will be willing to talk to you about your investment needs. Once you have answered the question of “how to finance your business”, make sure that you provide adequate finance for the time it will take to set up your business. One of the biggest reasons new businesses fail is because they didn’t have enough money to cover the opening costs. Don’t let this happen to your business.
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