While any number of factors can make or break a new business, financing tends to be among the most important. But start-up financing also is one of the most difficult tasks for entrepreneurs, hinging on the cultivation of trust in the face of risk. Whether you're pursuing cash investments from friends and family, debt financing, equity financing, venture capital or even credit cards, successful fundraising requires a strategic approach and plenty of patience.
Applying for a Business Loan: Identity the Purpose of the Loan
It isn’t enough to say that you want a loan to start your business. Lenders want to know that you have a clear idea of how you intend to use the loan. In short, without this they may perceive that you lack vision or don’t know how to allocate funds. You'll want to identify major pieces of equipment or projects that the loan would be used to fund. Show the lender any research you have on the cost of these items, as well as how you estimate the projects will help generate funds that can be used to pay off the loan.
There are two types of financing: equity and debt financing. When looking for money, you must consider your company's debt-to-equity ratio -- the relation between dollars you've borrowed and dollars you've invested in your business. The more money owners have invested in their business, the easier it is to attract financing. You may contact these investors directly, although they typically make their investments through referrals.
Small Business Grants
A small business grant offers at least one major benefit over a loan. You won’t have to pay back a grant, and threes certainly no talk of interest rates. Grants require a sound business plan that includes a clear strategy and credible financial statements. Grants can be found through local nominators, big corporations, state and federal agencies and other sources.
Tips for Business Loans: Get it in Writing
All the terms and details of the loan need to be specified in writing. A lender may make oral promises and agreements, however borrowers should rely only upon written documentation. A legal doctrine called "parol evidence rule" disallows any evidence of oral agreements in court if they conflict with the written loan documents.
A promissory note is a very common legal document that a business owner signs to legally formalize the borrowing arrangement. There are many reasons why a business owner might want to borrow money in the name of the business, instead of in their personal name. The business may have multiple owners, which can make borrowing and paying back money as a business simpler.
Hiring a Business Attorney
Whether you are starting a business as a sole proprietor, as a member of a partnership, or as a new corporation, a business law attorney can assist you at every step of the process, to help your business open its doors and succeed. No matter what type of business start-up issue you face, a business attorney can help you find the right solution for your new business such as choosing the right business structure for your needs.