How can you start a business if your personal credit is in the pits? The quick answer would be to start with a lot of money, but it's pretty obvious that if your credit scores are low, you're having trouble in that department so financing your own startup isn't going to be a possibility. Does that mean you can't enjoy all of the benefits of working for yourself and owning your own business? No, it doesn't mean that at all. It may mean you're going to have to be creative and learn everything you can about business fundability.
Being Creative with Financing
One of the hardest things for people to do is ask those they know for money. There can be good reasons for that, but when you are looking to start a business, sometimes it is necessary to do what is most difficult. This is especially true if you have bad credit. No one knows you better than the people in your life. If they believe in you, and are in a position to help you get started, it can be mutually beneficial for all of you.
Even if you are asking for money from friends and family, remember that nothing kills friendships faster, or destroys family relationships than bad debts and money issues. Give your friends and family ever reason to believe that you are sincere, capable and savvy. Pay attention to all of the information on creating a solid business and how to get started right. Some other very helpful websites are the Small Business Association and the Dun & Bradstreet business finance and credit site.
The people in your life may be financial wizards or they may not have a clue about what makes a good business startup. In both cases you will have to prove to them that you are prepared. It behooves you to do all of the same things you would to prepare for a bank loan application when seeking private investments from friends and family.
• Draw up a well-constructed business plan
• Make sure you have all the information on licensing and other legal requirements
• Know what the exact and reasonable expenses will be for your business over at least five years
• Be able to provide a reasonable expectation for profitability
These are the bare minimum requirements for showing a valuable startup investment. With friends and family you won't have to necessarily prove business fundability, but you should show them that your business will be profitable. It is also a good idea to address your financial problems and how you expect to be a good manager of your business funds. Let them know that you will not be using business funds they provide to spend on your own financial problems. Have a business bank account set up to keep all of your money separate from your private money.
Private Funding from Capitalists
If your friends and family are all in the same financial bind or are unwilling to finance your startup you still have options. You can seek investments from venture capitalists. Most venture capitalists, also known as angel investors, are interested in break out ideas, and tend to lean toward technological companies. However, you don't have to just look at the high powered investment corporations. Check out local business people in your community and state who might be looking for a good, solid investment for their money.
Venture capital investors work differently than a bank. They take a percentage of your company in payment for the money. The good side of that is that there are no loan payments to make and no interest. The downside is that you will have to share your profits with your investors. For that reason, the focus of your presentation will have to be more on how likely the chances are that your business will be profitable than how good your credit or your business credit is. You aren't going to have to prove business fundability the way you do at a bank. A bank is concerned with whether or not you can pay back the loan they give you even if your business does not make money. A venture capitalist is concerned with your business being able to make them money.
The Small Business Association
Even though bad credit will hamper your ability to get an SBA backed loan, the Small Business Association is still a great place to learn and seek guidance. They have counselors who can help you see if you have a chance at a traditional small business loan and can help you work toward building your business fundability.
Building Your Business Fundability
If all else fails, you can slowly build your business fundability. It will mean taking things slower than if you have a loan or financial backing. However, with careful planning you can work toward making your business strong enough to get a loan later. Apply for a vendor account with the businesses you buy your supplies from. As you develop credit with them, start applying for business credit cards. The most important thing to keep in mind as you do this is that even though it will take a little time you must make all of your payments on time.
Keeping your accounts in good standing will create business fundability in the name of your company. If your business has good credit you will be able to apply for a loan based on its good name and credit rather than your own.
----------------------------------------------------
Corey Pierce is CIO & CTO of CredSystems LLC which has developed http://www.BusinessFundability.com . In cooperation with Experian Business Information Services BusinessFundability.com provides business owners with a free test that allows them to see what any potential lender will see about the fundability of their business and then provides real world answers regarding what to do to increase their fundability.
EasyPublish this article: http://submityourarticle.com/articles/easypublish.php?art_id=280201
No comments:
Post a Comment