Financing your business requires a lot of determination, effort, and adaptability. It’s unreasonable to expect individuals to finance the entire endeavor with their own capital; start-ups simply require too much money for most people to do so alone. During this process, you should know four factors that affect financing your start-up—the variables that could be holding you back. Go into the financing process confident in your business plan and ensure you have the ability to make your case effectively.
Who You Are as a Business Owner
When you come into the office of a lender, they want to see a history of successes in your portfolio. That isn’t something that’s necessarily required, but it can increase the chances of financing. Banks and lenders will be far more cautious investing in an individual’s business plan if they don’t have any history, limiting your options. In a worst-case scenario, they may see a history of business failures, which they may take as a near guarantee that they won’t see their investment back.
The Probability of Success
Beyond the personal successes of the business owner, lenders will look over your business plan with a microscope. They’ll pick apart any and every detail they find lacking, underdeveloped, or worrying; each misgiving they have lowers the probability of financing. This makes it essential to have a clear, fleshed-out business strategy that can answer all their questions and eliminate their concerns.
The most important factor that will affect your start-up financing and one that must be included in your business strategy is the expected profitability of your endeavor. You must provide a projection of profits for the next two years if your company gets off the ground. This will prove to your lenders that you’ll not only make a profit but will pay back your loan on time.
How Much Money You Invest
The bank wants to see you financially invested in your business; they aren’t interested in paying all your expenses. You need to provide your own funding as a way of showing confidence in your project and that you’re willing to put up your own capital. Failing to invest anything will only show them you have little hope in the success of your business—and if you have no confidence, the bank will have even less.
Different Avenues of Financing
You should always have a backup plan in case one lender isn’t interested in your proposal. Whether that takes the form of an SBA loan or looking into ROBS 401k plan to finance your business, you should always have alternative options available. Your business will live and die on your ability for forward-thinking and adaptability, and pinning all your hopes on one avenue of financing can easily lead to failure.