The New Year is the time when would-be entrepreneurs spring into action to get their companies started. One important piece of the entrepreneurial puzzle is getting funding for your business. As an entrepreneur, you face a challenging road, and one of the biggest challenges is finding a way to fund your company.
In the current economic environment, getting financing for a startup is very difficult. Many entrepreneurs go about this process the wrong way. They often have unrealistic expectations and think that getting funding will be quick and easy. Because of this, they go unprepared. Furthermore, they often pursue the wrong sources . For example, pursuing an angel investment won’t help you unless you are in a high growth industry. And, without collateral, most banks won’t give you a business loan regardless of how good your business plan is.
Because of this, more often than not they don’t get funded and their business fails. I know because I see this every day, but it doesn’t have to be this way. It’s a matter of reviewing your options and pursuing those with the greatest chance of success.
Before we review the list of financing options, I’d like to take a minute to dispel a common myth. Many entrepreneurs believe that only good ideas get funding. This is not true. Results get funding. And by “results,” I mean that the entrepreneur has already built a proof-of-concept business that is running at a small scale and producing results. Those businesses have a much greater chance of getting funded. Keep this point in mind as you seek financing.
One of the biggest challenges for young entrepreneurs when they are trying to start up a business is of course securing sufficient funding. The most common hurdle is the fact that they have not yet managed to build up a good credit rating. Let’s take a look at some of the ways to get ahead despite a poor credit rating.
A credit score is fairly important when it comes to raising finances for your business, the higher the score the easier it will be to get loan or some other form of financing. However, it is not the be all and end all – you can still get funding with bad credit. The key is choosing appropriately so that you can begin to build up your credit so that when the time comes to move to the next level your business will have sufficient credit to do so.
Do Not Depend On Credit Cards & Bank Loans
It has recently been suggested that only 25 percent of entrepreneurs use traditional credit cards and bank loans to meet their start-up costs. That is actually great news for those seeking funding as it means that the majority of entrepreneurs are getting money from sources that are not so dependent on credit scoring. There are plenty of ways to fund a start-up which do not involve taking out a bank loan.
Due to the hardships between 2007 and 2010, the banking industry has gone through a number of changes designed to get through the recession. With the economy finally regaining strength and stability, small business owners looking to realize their dreams or expand their horizons are understandably curious about how the banking industry will affect them. The good news is that solid ideas with a strong target audience are still in good standing.
Available Credit Sees Ups and Downs
Because of the recession, most banks felt the need to create a number of newer, stricter regulations, especially involving credit. Up to 2010, little credit was available as banks worked to make sure they could cover their own liabilities. In the intervening years, however, the economy has slowly but steadily become stronger.
The increasing bankruptcies or dissolution among small businesses has mirrored the decreasing confidence of small entrepreneurs have had in the already sluggish economy. Since the start of recession, securing funding for a small business is more difficult than ever. One example is getting credit to start a business venture. Since lenders and investors know the fact that small businesses are more prone to risks, they are getting wiser and stricter on who will be eligible to lend credit. This leads small business owners to pursue alternative funding options and other sources of funding that are often overlooked but might prove to be the start of smooth sailings for a business.