| Very few people can afford to start a
business using nothing but the money they’ve got lying around in their bank accounts.
For most of us, we’re going to need to get a loan before we’d have anywhere near
enough money to invest in starting up.
Your Credit History
You might not have realized that your credit history was
going to count here, but it does. This is where all those late credit card payments come
back to bite you. The better your credit history, the more likely a bank is to lend you
money, and the better the rate it offers will be.
Bank Loans
Banks usually have someone whose job it is to go through
applications for business loans. These people have seen a thousand business plans, and
they know what they’re looking for.
Take along all your plans and any other supporting material
you can put together. Make sure you present yourself at your most professional. Act like
the most sensible and level-headed person you’ve ever met. This is, essentially, a
job interview: the bank is interviewing you and your business to try and figure out
whether it would be a safe place to put their money. Remember that they’re just like
every investor, lending you money with the expectation that they will get it back, plus
interest.
Secured Loans
Of course, you’ll probably have a much easier time
persuading a bank to lend you money if you put up something of your own as collateral in
case you can’t pay the debt back. Some dodgy banks would really like you to secure
your business loan on your house, since they know that the failure rate of start-ups is
high and they’d really like to get their hands on it. Be cautious, in case you sign
your life away. It is almost never worth starting a business if you can only get secured
loans – you’re tying the business’ fortunes too closely to your own.
Government Loans
As part of the push to support small businesses, there are
now many government bodies that will offer no-interest or low-interest loans to small
businesses, a category which includes home businesses. The government lot will obviously
be even more picky about your business plan, but it’s still a good option to have
available to you. Even better, these loans will often come with free help and advice from
the agency that issues them, as well as all sorts of booklets and leaflets telling you the
technical details of getting started.
Credit Cards and Overdrafts
These forms of debt are a very bad idea. Whatever you do,
do not finance your business with personal debt. You’ll have to make a massive profit
just to pay back your debts, and it’s unlikely that you’ll manage to both pay
them off and have enough money to live. If you can’t get a loan, try to find other
investors instead.
Friends and Family
Friends and family can be a surprisingly good source of
loans to help start businesses, especially if they’re in the same industry themselves
– they’ll be more than happy to help you get a foot on the ladder. You might be
able to persuade someone to give you the money at a good rate of interest, or even to act
as a ‘sleeping partner’, financing half of everything while leaving you to run
it all.
Be aware, though, that many friendships and families have
been ruined by failed businesses. I had a friend who went around raising thousands from
everyone he could think of to start a magazine of his own, only for it to crash and burn
by the second issue. Be warned.
Keep Trying
If you get turned down for a loan, keep trying (preferably
at different banks!) You should revise your business plan each time, and try to get as
many people as possible to read it – the more people who see it, the more ideas and
suggestions you can hear. If your credit rating is fine, then the problem has to be with
the business plan: fix it, and you’re set. Good luck. |
