Operating a small business or startup can be a rewarding endeavor, but it’s not without its challenges. For many aspiring entrepreneurs, the most significant barrier to accomplishing their dreams of business ownership is securing financing. Even businesses that don’t require specialized equipment or working space still have basic setup needs and resource requirements.
Fortunately, there are many options available for those willing to do the work. Here are nine strategies for financing your small business and getting the best possible start.
Improve Your Credit Score
Securing traditional forms of financing relies heavily on having a strong credit history, which is summarized in your credit score. Depending on the type of business you’re starting and your legal structure, your personal credit score could be the key indicator of whether or not you get financing through traditional channels. The better the credit score, the more options are available to you.
It’s important to note that having bad credit isn’t a deal-breaker for financing. Many people with less-than-perfect credit apply for Montana Capital bad credit loans with great success. However, it’s still worth focusing on making targeted improvements.
Start by reviewing your credit report and flagging any negative items impacting your score. Things like collections, late payments, bankruptcy, and hard inquiries (i.e., previous loan requests) can negatively impact your score. Use this as a guidepost for making strategic improvements. Dispute any negative items that no longer belong on your report and work to pay down your existing debts.
Create a Financial Plan
Before anything else, you should create a financial plan. Regardless of whether you opt for a traditional loan or use your personal finances to fund your business, your financial plan will act as your starting point. The exercise of developing a financial plan will also help you gain perspective around your business, encouraging you to research the costs involved for a more realistic idea of the journey ahead.
A financial plan is typically contained within an overall business plan. This document should outline your operational costs, a proposed sales forecast, pricing, financial goals, and KPIs. It’s integral to take your time with this process and include accurate data.
Your financial plan may not be set in stone. Once your business is up and running, you may determine that some items you thought you required are unnecessary, or that certain tools could revolutionize your enterprise. However, most financial institutions require a realistic financial plan before approving funding.
Apply for Local Grant Programs
Before you reach out for financing, research local grant programs to determine your eligibility. Many governmental and non-profit grants are available to entrepreneurs, often requiring nothing more than an application outlining your business plan, costs, objectives, and passion for your project.
It’s worth noting that applying for grants can be time-consuming and competitive. You may also be required to match the funding. However, it’s worth exploring this option and determining whether there are any niche grant options to support your industry or any personal identifiers, such as grants for minorities, veterans or women.
Learn How To Bootstrap
Bootstrapping is an art in the business world, which relies on the business owner to save money and get started with no budget. Steve Jobs and Steve Wozniak are legendary examples of bootstrappers who started Apple in a garage.
Outside of developed countries, bootstrapping is the norm. In entrepreneur-rich areas like Latin America, bank loans and investors are difficult to come by. These driven individuals finance their businesses personally, getting creative with guerilla marketing efforts and taking their time to reach success.
Shift your mindset from one of instant gratification to one of hard work and dedication. Nourish your networks, explore your low-cost options, and get started before you’re financially ready.
Crowdsourcing and social funding is an incredible innovation that not only helps secure financing but effectively validates your business idea. The key to crowdsourcing is understanding your financial needs and requesting donations in return for an offering or pre-selling your concept.
For example, say you’re trying to start a sushi business in your neighborhood. You’ve done a few pop-up events, created a business structure, and made community connections. To make your business a reality, you need a food truck, so you crowdsource. You start a tiered campaign in which people offer money in return for a service to be delivered upon completion of the campaign. Lower-tier donors could receive a specialty sushi roll, while upper-tier donors receive a platter. With time, the financial goal is reached, the truck is purchased, and the promises are delivered.
Presenting your financial plan to investors is another option for securing funding. The benefit of this option is that you typically gain access to a mentor who has experience and knowledge in the industry. The downside is that you relinquish some control of your business and must accept feedback and suggestions from others.
Finding investors can be challenging. As with crowdsourcing, validating your idea, crunching the numbers, and nourishing your networks are a must for success.
Create a Scaling Plan
Scaling and bootstrapping go hand in hand. Many new entrepreneurs make the mistake of going big at the start of their business. Creating a scaling plan will help you work within the confines of your resources without overextending yourself while creating an expansion plan.
For example, if you’re starting an ATV tour business, purchasing 10 brand new ATVs on day one would be a mistake. With scaling, you’d buy maybe five, then invest in more once your bookings increase and you’re turning customers away.
Never underestimate the power of bartering your services. For example, if you’re a roofer who needs your website done for your new roofing business, you could offer that service in return for web development.
Bartering is a great way to connect with other small business owners and build word-of-mouth referrals.
Reinvest in Your Business
Finally, create a plan to reinvest in your business. Set a percentage of your profits that will go directly back into the business to make improvements and expansions. For example, you might determine that 10% of your profit goes directly into future marketing efforts to help grow your business. As those marketing efforts pay off, that 10% will increase and create exponential value.
With these strategies, you can finance your business in a variety of conventional or unconventional ways. Take it slow and work through a financial plan before you dive in.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes