Ravi Chandran
Find Money to Grow Your Business
Borrowing can get your business up and running and can help promote growth. You’ll find that lenders offer many options that can help minimise your borrowing costs. Keeping your own industry, cash flow, and business situation in mind, there are several choices that can help you find the money to grow.
Self-generated
The most convenient source of business financing can be from you. Your existing cash and investments can provide interest-free capital and your home or other larger assets can be used as borrowing collateral. Having a good credit rating can help secure favourable rates.
Term loans and lines of credit
Interest rates are relatively low, which means borrowing to invest in your business remains less expensive than it has been in the past. Two common forms of debt financing are lines of credit and term loans
A line of credit will allow you the flexibility to draw money when you need it. It is like an “open loan” that can be used whenever the situation demands, such as covering short-term expenses while you wait for money to come in from customers.
Term loans can be a good option when you require a lump sum of money to purchase a large asset, like a truck, office furniture, or an extra computer. In general, the time of repayment matches the useful lifespan of what you purchased.
Credit Cards
More than 70% of small business owners use credit cards to fulfil some or all of their financing needs. Credit cards can be a convenient source of short-term cash, to buy equipment and cover day-to-day business expenses. You can borrow interest free by taking advantage of interest grace periods that many cards offer.
Credit cards can also give you instant credibility with suppliers, since they establish you as credit worthy and guarantee immediate payment. It’s easy to keep track of expenses and manage your cash flow with credit cards, as your spending activity is detailed in a monthly statement.
Keep in mind that lenders may look unfavorably on having multiple credit cards. To them it may mean you are in over your head. Try to keep your number of credit cards to two, which makes planning and bookkeeping more manageable and can minimise fees. Instead of applying for new cards when you need access to extra cash, consider having the limit on an existing card increased. Remember that it is also prudent to keep your personal and business expenses separate.
Growing your business needs a good understanding of your customers, market and competition. Do you know your customers and market? Do you know your competition? We’re happy to offer some advice to you. Come in and speak with us.
There are also companies that specialise in helping entrepreneurs find money by coaching them through the approval process and informing them of all the options available.
1. Bank Loans
Many small businesses are started with the help of a bank loan or a Small Business Loan from the Government backed loan schemes. Government backed loan schemes are loans from a private bank with the Government as the “guarantor” of the loan. This means that the Government will absorb some of the risk on behalf of the small business.
To find money from your bank is fairly straightforward: simply call or visit your bank and ask about the requirements for getting a small business loan. Depending on the bank, the loan process may be fairly easy or extremely complex.
2. Venture Capital or Angel Investors
Some business ideas are so good and have so much potential that obtaining venture capital may be the way to go. In this process, the entrepreneur submits his business plan to a venture capital firm (or more than likely, knows someone who knows a venture capitalist). The venture capital firm will review the business plan and, if interested, offer to provide startup money (usually well over $100,000) in exchange for an equity stake in the company.
Anyone familiar with the “dot-com boom” of the late 90’s knows that this can be a long and difficult process but the rewards can be astronomical. Companies like Yahoo! and Amazon.com were funded in this manner (and their founders are worth billions), as well as many other companies you are familiar with: FedEx, Google, etc.
This is not to say that you need venture capital to become a great company. Most of the large businesses you are aware of started as a small business with little or no help, then obtained venture funding or “went public” after they had grown relatively successful.
Another source is what is called the “angel investor”. This is usually a private investor who has considerable amounts of money to invest in new business ventures, the proverbial “rich uncle”. Most people don’t have access to these types of investors but we’ve listed some resources below.
To find money besides bootstrapping may seem odd when you have already got personal savings. But you saved that money for a reason — perhaps to fund children through education or provide for your retirement. Whatever that reason is, if you tie up that cash in your business, it’s not available for the original purpose. Taking out credit for your business offers a number of benefits and can improve your chances of commercial success.
Most financial institutions and non-traditional lenders disclose their minimum requirements for lending. If you meet a lender’s minimum qualifications and want to see estimated rates and terms, you can pre-qualify for financing. But pre-qualification is not the same as putting in an application for personal loans.
You may pre-qualify for a loan and yet your loan application may be rejected once you put in a formal application – and the more formal personal loan applications you put out, the more the impact is on your credit score. This is why you need a loan consultant to help you to find money.
