By Natalie Lemmon
So, you have a great idea to start up a business. Many entrepreneurs have the initial spark but do not know what to do next. Whether it is a new food truck or a franchise retail shop that you are opening, sufficient funding is always essential in starting a business. Below are some common ways to fund a start-up business:
Your own savings, or funds from family and friends
The traditional method to funding a start-up usually comes from the funds you have already saved up many moons ago. Or if you have the gift of the gab, perhaps you may attempt to borrow from your friends or family! This is often the hardest way to fund your business as you may not have the full amount of funds idling in your bank account ready as capital to start a business, or your family and friends simply have no confidence to see their money returned to them again. Having said that, most banks who are willing to lend to start ups would always want to see a portion of “Hurt Money” being invested by the potential business owner before financing the other half. After all, if you do not back your own business, who would?
Personal loans and credit cards
An alternative for small business owners to fund capital costs or inventory purchases could be through an existing credit card or a personal loan facility. This may be a simpler way of funding a new venture as the requirements for personal finance are typically lesser than a business finance. Often personal lending is assessed based on the income you earn from your employer. So, if you have left your job, it may be tricky for you to prove your ability to service the repayments to get personal finance. However, the interest rates for these types of loan facilities are high and the borrowing is limited to the amount of income you earn from your employment income, instead of the potential income from your start-up business.
Crowd funding and angel investors
You could also approach the open market with your ideas by coming up with a great pitch and hope for angels to hand over some cash. This is very possible when your idea or solution is unique, stands out from the crowd and potentially could be the next big thing. And if you are of a brave heart, why not sign up to be a part of TED or to be on Shark Tank, where you may receive advice from successful business owners and potentially walk away with seed funding. However, if you are looking to start a traditional business, it is less enticing for this pool of potential investors. Even if you have managed to turn the heads of some investors, you may have to consider the percentage of the shareholdings or ownership you are willing to give away in order to entice the investor to fund your venture. Having said that, this may be a great avenue for FINTECH companies and people who are working on the next Facebook!
Small business finance
Small business finance through a lender could be a big process if you don’t know where to start. Most banks would require you to have at least 2 years’ worth of business trading history and show a net profit before they would consider lending you any money. However, there are still a handful of lenders that are willing to help you right from the beginning if you have the following prepared at the bare minimum:
1) A business plan that is well thought of
2) Cash flow projections for the first year
3) A comprehensive listing of the cost to start up the business
4) No adverse credit history against you
5) Appropriate qualifications, industry experience and management experience
6) Ready to sink in your “Hurt Money” as a percentage contribution to your new venture.
7) Evidence that your tax position is up to date and no liability with the Australia Taxation Office
Credit Representative 490860 is authorised under Australian Credit Licence 389328 www.finarc.com.au Your full financial situation would need to be reviewed prior to acceptance of any offer or product. ‘Subject to lenders credit criteria, terms and conditions, fees and charges apply’