How to Obtain Finances for Starting a Business

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When starting a business, it's important to be able to demonstrate to a bank what the business will be doing to get the message out. Discover how personal credit is important when trying to obtain finances for a start-up business with help from a general business counselor in this free video on getting finances to start a business.

Part of the Video Series: Small Business Advice
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How to obtain finances for starting a business. The most annoying thing I think to a banker or somebody that is looking at financing is that if you build it, they will come mentality. Like I'm just going to open the door, and you know everybody is going to come and do business. You have to be able to demonstrate that you know your customers, and what you are going to do to reach them, and get the message out. Especially for brand new business. What you will do is you will put together this beautiful plan, and it will be in this you know it will be you know gorgeous and pristine, and logical, and complete, and then the banker will say, "oh that is cool, what is your social?" And they will check your credit, because you are a start up, it is all your personal credit your business does not have credit yet. So you want to make sure that you have got a decent credit score. Lenders that we work with say that six fifty or six eighty is the absolute lowest that they will work with, and even then you have got to have some liquidity or some collateral or something there. At the beginning a lot of businesses they are financed by loans from friends or family. Then there is commercial financing, and in that you can go with an SBA backed loan, which the SBA doesn't lend any money directly. What they do is guarantee loans with others lenders so it makes other lenders more likely to do the deal, because it makes it less risky for them. So a bank with an SBA guarantee that is going to be a little different. You have to come up with a little bit less money on the front end, and usually that is ten, fifteen percent of the borrowing amount that you would have to you as the entrepreneur would have to provide. And they do that, because they want you to have skin in the game. They are not going to zero finance, you are not going to get one hundred percent financing on anything. But the good things about bank loans is that as long as you are paying them back they are generally not terribly interested in getting in on the day to day management of your business. And that can be nice as long as you are, you are free to do it your way as long as you are making your payments, and doing what you said you would. And the thing you have to keep in mind with investors is that they are looking for big returns, because a lot of the deals they get into are not going to work out. So the ones that do work out have to kind of make up for the rest of them. So they are looking to have an investment that can return thirty or forty times what they put into it. So you have got to make sure that you have got a business that could be really huge in order to be considered for venture capital.

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