If you have a business idea or think your true calling is to pursue an entrepreneurial path, but are beyond broke to start your own business, the only way to make that dream come true is to raise capital Funding your dream loan business. Yes, you can have different sources to apply for a business loan. But all are different. Some may not even allow you to borrow credit.
Here we list some sources you can apply for credit from and their qualifications to help you narrow down your potential customers.
Equity means ownership. Therefore, those who have built their businesses are the ones who are only eligible in this form of loans. If you decide to invest, you should be willing to let some of your startup go. Because as soon as 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 one of those owners who likes to have full control over your business, you can easily take out a loan from other companies in your business – if you happen to have one. Or borrow from your friends, business associates, shareholders, or anyone you trust and make an agreement with them instead. That would be legal as long as you agree with these people. Additionally, before indulging in this type of loan, you should learn about the law to protect yourself.
Personal saving is the most common form of investment. This means that the funds you are likely to receive to start your business will come from personal savings, inheritance, friends and family. This is the type of investment most people turn to when starting their own business. And it’s actually a good thing for investors and moneylenders because it means you’re very committed to the business because you’re willing to risk your personal savings.
In the course of your business it is advisable to limit your personal investment to at least 25% in order to increase an equity position and leverage. Remember, the more equity your company has, the more attractive your company is to banks, who can lend you up to three times your company capital.
This is the second most common form entrepreneurs use to fund their businesses. According to Business Week, small business loans are being rejected by 18 percent due to the financial crisis. However, this does not mean that your loan would be declined as commercial loans are on a case by case basis. And the only way to get your loan approved is to stick to the 4Cs of lending. Here you are:
cash flow: It is the amount of money that circulates around your business or cash. When you apply for a loan, you need to strengthen your cash flow as this will signal that you are able to repay the money you have borrowed.
Security: It is the value of the asset that you are willing to pledge as collateral to pay off your loan. This is to reassure the lender of your payment obligation, otherwise the collateral will be forfeited in the event of a default.
Obligation: This is the amount of money you put into your business. However, this is not as important as the other two above as your loan can still be approved without disclosing your stake.
Character: This includes your personal credit history and history with the financial institution as a whole. This is exactly what you need to look out for when looking to take out a loan. All your debts, no matter how small, should be paid off and you should maintain good credit to greatly increase your chances.
In fact, there are various institutions where you can apply for a loan. It all depends on how creative you are in designing your capital mix to start your dream business.