
If you’re considering starting your own business, the idea of raising money can be daunting. For those starting from a $0 balance, applying for a business loan may feel like a waste of time. However, the tips below can help you find funding quickly.
Hold Onto Your Bootstraps
No matter how good your ideas are, you may have to bring some of your own money to the table for your early investments. To that end, keep an eye on your personal credit as it can impact your ability to borrow for your business.
You may need to make an initial investment by bootstrapping your first business. For example, if you want to start a mobile coffee business, you may need to drive your college clunker while all your current income goes into paying for the van and starting your early morning route. You may need to work evenings to pay your personal bills while your morning time and all of your business income go back into the business.
As your credit grows and your business income increases, you may find that you can start to pay yourself back. However, many entrepreneurs find that, at least in the early years, most of their business income goes back into the business.
Apply For Both Short Term And Long Term Financing
Short-term financing is critical for those working to build something that can ultimately serve as collateral. For example, if you want to take out loans for land development to build apartments or condos, traditional banks may be able to offer you a builder’s loan. However, these loans can be slow to fund and may be limited.
By working with private lenders, you can speed up the process. You may also be able to create a more high-end build because you don’t have to deal with comparables and other data requirements that banks must fulfill. Whenever stocks get crunchy and bond payouts are poor, your chance of finding a private investor with cash ready to lend goes up. Once you and your lender have developed a good rapport and have both profited from one another, you can likely borrow again when needed.
However, a happy private investor isn’t enough. Ultimately you’re going to need to refinance that real estate deal, either as a flip or as a rental. You will need to maintain a strong relationship with a mortgage provider. It’s also a good idea to submit an application with the SBA and keep it current, depending on your business structure.
Borrow Against Your Business Assets
Once your business is making money, you may find that your business assets are going up in value. You can grow your business by harvesting cash back out of those assets, though you will need to avoid borrowing too much and leaving your business assets vulnerable.
For example, you may choose to buy land in a sparsely populated area. If nearby cities become too expensive or crime rates go up, you may find that other folks are interested in your land. You now have several options. You can
- sell the parcel
- split the parcel and sell the lots
- lease the lots separately
- build on the lots and sell the properties
- build on the lots and rent the properties
Each of these choices requires some serious thinking. Do you enjoy maintaining properties, or is your joy in developing the land? Don’t be a landlord. Would you prefer to be further from the city and be able to afford more land? In that case, selling the whole parcel may make more sense.
You don’t have to have your decision made when you buy the land. However, if your point in making the purchase was to use it as a source of income, you should have an idea of what aspect of land development and property ownership you want to dig into.
Crowdsourcing
Crowdsourcing, or building an internet campaign to raise money for your business, is another way to get your idea in front of investors. The impact of the pandemic on many businesses has created a community of investors that are happy to help you grow your business by
- donating time and effort
- lending you money that will need to be paid back
- purchasing a share of your business as an early investor
To properly crowd-source your business, you will need to put together a cohesive package that tells the story of your business and your plans with these new funds.
If you can make a YouTube video or know someone who can help you create one, do so. Write a narrative about your business journey thus far and your end goal for this new funding. Be very honest; if you hit financial hard times in 2020, share your story.
Like it or not, crowdsourcing is a very personal process. You will need to be open with your potential pool of investors to get them to contribute, especially if you’re asking for large sums. You will also need to maintain that relationship with regular updates about your progress and growth.
Build A Strong Relationship With A “Sticks And Bricks” Bank
Loan applications are tedious and time-consuming. Even if you do everything else online, it is critical that you go ahead and build a relationship with a sticks and bricks bank in your community.
Take care what you route through this account. For example, you may prefer to route your personal paychecks into an online bank, but your business account should be grounded to a sticks and bricks bank. Once they have your business documents and can see your monthly transactions, you can turn to them for quick and useful funding sources, such as letters of credit.
Letters of credit are particularly useful if you have the chance to buy at auction. Whether you are looking for classic cars, farm implements, or machine shop tools, the ability to be able to quickly provide proof of funding will increase your buying power. Local banks can offer you flexibility and a foothold in your community that an online entity simply can’t provide.
You can raise money for your business in a variety of ways, including out of your own account. However, as soon as possible you will want to separate your business and personal finances. Life will be much easier come tax time.