How to Get a Startup Business Loan
When you start a business the first thing you will need is seed funding to get your business up and running. It is not very easy to get funding but your chances are considerably improved if you can make an impressive professional presentation of your business idea and funding needs, whether you are approaching friends and family or commercial funding sources such as banks, finance companies or Angel Investment Groups.
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Things You'll Need
- Business planning software or spreadsheet templates. Market research about your target customer. Research into the costs of producing your product or service.
Instructions
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Prepare Your Case for Funding
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Define your business idea. If you approach anyone about a loan you must be able to explain your business idea in a quick concise and confident manner. Whether you are approaching a family member, friend or banker, they are going to want to feel that you have fully thought out your business idea, have developed your business model, know your sources of revenue, and have planned the build-out. Nobody wants to lend money for a frivolous whim. The completeness of your preparation is a good indication of your level of entrepreneurial passion, and the more passion you display for your project, the more likely you will inspire someone to lend you seed money.
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Gather information on your target market, your costs of doing business, and your competition. Your marketing will be more effective the more completely you can identify the demographics and psychographics of your target market, and more effective marketing improves your chances of success. Another thing that is vital for business success is detailed analysis of how much it will cost to buy raw materials, equipment, labor and anything else that goes into the production of your product or service. You will also need to research your administrative costs, which include rent, utilities, insurance, legal and accounting expense, and personnel expense. Additional research should be devoted to studying your competition.
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Prepare your financial projections. Once you have completed your research into production, marketing and administrative costs you are ready to put together your financial projections. The quality of your financial projections is very important when seeking a loan because they will demonstrate the level of your knowledge of the business as well as your potential for paying off the loan. It is usually a good idea to purchase a business planning program or download financial templates that include the following spreadsheets: sales projection, personnel plan, profit & loss statement, cash flow statement, and balance sheet.
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Write your business plan. You will want to write a well organized concise and factual description of your business idea, your target customers, how you will market to them, how you will build out your company, and how you will compare to your competition. You will want to avoid overly enthusiastic claims about your company because hype detracts from the image of professionalism. Many venture investors or lenders immediately disqualify a business plan that claims the company is the preeminent purveyor in the industry or other hyperbole.
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Show your business plan to people who can give you professional feedback. One of the most difficult things to do is to describe your own business idea. That is why you should show your plan to business professionals or counselors from SCORE or the SBA for feedback before presenting it to your prospective lenders or investors.
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Tips & Warnings
You are now ready to take your business plan to a potential investor, bank or finance company. Once you have corrected any faults revealed by the people who have reviewed your business plan, you are ready to take it to friends and family lenders or local banks. Your SBA office should be able to direct you to the banks or finance companies that are active in small business lending. You should know how much money you will need to reach a point where you are producing revenues. You should also be prepared with information on any assets you have that can serve as collateral for your loan. While friends and family may lend you unsecured money, a banker is unlikely to do so. You may need to polish your credit score to qualify for credit cards if you don't have a house or other assets.
Make sure your claims are truthful and realistic. You will have only one chance to make a good impression, so you will want to approach your least likely prospects first in order to gain some experience in pitching your idea. Use your business plan as a presentation tool and keep your comments short and factual and always ask if your prospect has any questions about what you have just explained. Try to make a presentation that would impress you if you were considering lending someone seed money for a business.
