Ways to Fund Your Dream Business: Different mix of capital to start your business
If you have a business idea or feel that your true calling is to go down the entrepreneurial path, but you are too broke to start your own business, the only way to make that dream come true is to borrow capital to finance your dream business. Yes, you can have different sources to apply for a business loan. But everyone is different. Some may not even let you take out a loan.
Here we list some sources from which you can apply for a loan and their qualifications so that you can narrow down your prospect.
Capital means property. Therefore, those who have built their business are the ones who are allowed only in this form of loan. If you choose an equity investment, you must be prepared to leave some of your startup behind. Because once you sell 51 percent of your shares, you lose control of the company. This type of loan is the same as putting a “business for sale” sign on your business.
However, if you’re the type of owner who likes to run your business entirely, you can simply borrow from other companies in your business – if you happen to have one. Or borrow from your friends, business partners, shareholders or other people you trust and enter into an agreement with them instead. This would be legal as long as you have mutual consent with these people. Also, before indulging in this type of loan, be sure to know the law to protect yourself.
Personal savings are the most common form of equity investing. This means that the fund you are likely to get to start your business is through personal savings, inheritance, friends and family. This type of investment is what most people resort to when starting their own business. And it’s actually a good thing for investors and lenders because it means you’re highly committed to the business because you’re willing to risk your personal savings.
In the course of your business, it is advisable to keep your personal investment at least 25% to increase your capital position and leverage. Remember, the more equity your business has, the more attractive your business is to banks, who can lend you up to three times your business capital.
This represents the second most used form of business owners to finance their companies. According to Business Week, small business loans are down 18 percent due to the financial crisis. Although this does not mean that your loan will not be approved as commercial loans are individual. And the only way to get your loan approved is to stick to the 4 C’s of lending. Here they are:
Cash flow: This is the amount of money that is floating around your business or your liquid assets. When you apply for a loan, you should increase your cash flow, as this is a signal that you are able to repay the money you have borrowed.
Collateral: This is the value of the asset you are willing to pledge as security for your loan repayment. This is to reassure the lender of your commitment to pay, because if not, the collateral will be forfeited in the event of default.
Commitment: This is the amount of money you spend on your business. However, this is not as important as the other two mentioned above as your loan can still be approved without disclosing your equity.
character: This covers your personal credit score and history with the financial institution as a whole. This is something you should look into if you are planning to take out a loan. All your debts, no matter how small, must be cleared and you must maintain a good credit score to greatly increase your chances.
In fact, there are different institutions that you can apply for a loan. It all depends on how creative you are in designing your capital mix to start your dream business.
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