Locating and securing business startup funding in a tight credit market is one of the most daunting tasks an entrepreneur faces. According to CNN, small business loan failures have jumped from 2.4% in 2004 to nearly 12% at the end of the 2008 fiscal year. This huge jump in failures makes securing funding difficult. Follow these practical steps to increase your chances for success.
This is a critical phase that many business startups overlook in their rush to get started. Decide what amount of profit you will require for the venture to be worthwhile for the most critical investment, your own time and energy. Lenders will want to know if you plan on taking a lion’s share of the profit to fund your lifestyle or do you plan on living frugally and devoting the bulk of your profits to paying down debt.
Formulate a Business Plan
Now that you have your profitability goal, you can decide what profit margin you are aiming for and the number of customers and amount of transactions needed to reach your goal. You will also detail marketing strategies and customer acquisition costs, overhead and other operating expenses.
The SBA is a resource partner with SCORE, an organization that provides no-cost and confidential business mentors and offers free online workshops on developing your business plan. They can also turn out to be great networking resources and may introduce you to key business contacts.
There are also many other organizations and consultants who can provide assistance in this critical step. It is very likely that any source of funding beyond tapping your credit cards, home equity line of credits, IRAs or family and friends will require a well thought out business strategy and plan to implement it.
Bootstrapping is a popular form of business startup funding for the simple reason in many cases it is the only option. If your funding requirements can’t be met this way, the next step is usually to meet with your banker. If you have a relationship of trust already established, it will greatly improve your chances of securing a bank loan. And even if the bank isn’t willing to fund your business, the banker may know of funding programs and grants you can apply to.
There are online networking groups like The Funded which you can join to get information on venture capital investors. This site is free and has 12,000 members and as important as it is to get tips on sources that are lending, a group like this can offer tips on venture capital investors to avoid.
Maltby, Emily. “SBA small business loan failure rate hits 12% – Feb. 25, 2009 .” <em>Business, financial, personal finance news – CNNMoney.com.</em> N.p., n.d. Web. 18 Feb. 2010. <http://money.cnn.com/2009/02/25/smallbusiness/smallbiz_loan_defaults_soar.smb/>.
“TheFunded.com: The Resource for Entrepreneurs..” <em>TheFunded.com: The Resource for Entrepreneurs.</em>. N.p., n.d. Web. 18 Feb. 2010. <http://www.thefunded.com/>.