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To start any business, you will need to ensure enough working capital in your start up period and beyond. Your first step in this process is to find out how much funding you will need to get up and running. After this, you can consider the different sources it can come from. The majority of entrepreneurs rely on their own resources and those of friends and family for start-up capital. Financial institutions are understandably cautious about loaning money for start-up enterprises because they're new and don't have a history of success. Lenders will look for the following when considering a business loan application; cash flow, credit and collateral. Remember when seeking financing you must show you are positioned to repay the debt and if not, there is a remedy for the lender.
Most lenders want to see three to six consecutive months of cash flow. That means you need to be operating and showing a profit before they will consider loaning money or extending credit.
Anyone wanting to borrow money needs to have an acceptable credit rating. The required score varies based on the standards of each financial institution. The borrower is almost always asked to sign a "Personal Guarantee"
A personal guarantee is an agreement that makes one liable for debts or obligations The agreement signifies that the lender can lay claim to the guarantor's (borrower's) assets in case of borrower default. It is equivalent of a signed blank check without a date. The lender's actions are usually based on seeking assets that are easier to take control of and sell. Once signed, a personal guarantee can only be cancelled by the lender.
Lenders look for you to have collateral (assets) that can be pledged and sold as a remedy if you default on a loan. This can include personal assets such as cash and/or real estate or tangible property that is already owned by the business such as equipment and/or real estate.
1. Conduct Market Research
2. Develop a Business Plan
3. Choose a Business Structure
4. Register Your Business
5. Obtain Business License and Permits
6. Choose the Right Location
7. Finance and Incentives