As the name suggests, SME start-up loans are used to begin a new business. While the traditional place to go for one of these loans is to a bank or other financial institution, there are other options you can consider for a small business start up loan.
By: Hitesh Khan/
Finding the money to fund your new company (or an existing company) can be an interesting experience. A good business plan can help you determine how much money you need to get started. Truthfully, most new businesses are started with the owner’s own cash, credit cards, friends and family, without any type of plan whatsoever. However, we’ve detailed some methods for you to find the money for your new company.
The following are three common methods of getting SME start-up loans that won’t necessarily involve banks:
- Friends and Family: Friends and family members are one of the most common places to get SME start-up loans, but using them can have complications. Your personal relationships may be at risk if there is a problem on either side of the deal. If you use friends or family for a small business start-up loan, you need to handle it like a business transaction and put everything in writing. Handled properly, this can be a very simple way to get started.
- Venture Capital: Venture capital is money offered by individuals or groups to be invested in a business. There are venture capital firms and some government entities that specialize in providing venture capital.
- Private Investors: Private investors can be individuals or groups. Some investors prefer to be silent partners, while some will want a more direct connection to the management decisions being made in your small business. Understand what the ramifications will be before you accept an investment in your small business. An investor’s input can be very beneficial; in addition to funding they can offer guidance and some creative direction.
TIP 1: There are companies that specialise in helping entrepreneurs obtain SME start-up loans by coaching them through the approval process and informing them of all the options available.
“Bootstrapping” is another method for obtaining SME start-up loans. The dictionary definition of bootstrapping is “To promote and develop by use of one’s own initiative and work without reliance on outside help”.
Most small businesses are started with nothing more than the owner’s own money, work, and debt (usually credit cards, home equity loan, etc.). This is also jokingly referred to as “sweat equity”. To get their venture launched, entrepreneurs have utilized many methods for getting SME start-up loans, these include but are not limited to:
- Credit Cards
- Friends and Family
- Home Equity Loans
- Loans from a Bank
- Cashing in Stocks or Bonds
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.
Although this can be a long and difficult process, 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”.
Many small businesses are started with the help of a bank loan. Getting a loan from your bank is fairly straightforward: simply call or visit your local 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.
TIP 2: Independent Loan Specialists are professionals who can help you navigate through an extremely difficult terrain of paperwork and differing interest rates to get SME start-up loans.
There are many loans in the market for small business owners and not all products may be the best fit for your business. What’s worse is, taking an unsuitable loan could be a huge setback to you personally, as well as to your business. So, an important factor is, work with your lender to determine the type of loan that fits your needs.
Before getting SME start-up loans though, you need to talk to loan consultants. They can set you up on a path that can get you a it in a quick and seamless manner. Loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. You should also get yourself up to speed by reading up on some money saving tips.
Affordability Tools are also an important tool if you are considering to buy a property to house your business. Calculators especially, come in handy to help you ascertain the fair value of a property and find properties below market value in Singapore. You will also do good to find out more about Peer to peer lending versus that of SME loans so as to make an informed decision.