How To Get Capital For Your New Business

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For every new entrepreneur, the biggest problems are initial startup capital and working capital once the business is up and running. There are multiple ways to get funding and some options are often better than others depending on your needs. When starting a new business, entrepreneurs typically either have savings stashed away, borrow from family and friends, or go to a bank for the capital that they need.

The quickest way to get your ideas off the ground and jump start your business is by investing your own personal savings. This method allows you to bypass having to wait on third parties, credit checks, and mocking up a business plan. While using your own savings to start a business is the fastest, it may not always be the right way to start your business. If you use up all the capital you have saved, you may not be able to get other lenders to support your business.

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The second option, borrowing from your friends and family, is another common way for entrepreneurs to raise capital quickly. However, this option has a downside as well. Depending on your friends and family, it can be much more stressful when it comes time pay them back. There have been many family and friends that have parted ways over a dispute about lending money. If you can avoid this option I would highly recommend it.

 
The last option for financing is going to a lender such as a bank, government lending agency, or corporation lender. This option has many factors that will determine whether you will be approved to get the capital you need. For most lenders, there are three key factors that play a role in the decision-making process. First, your personal credit score is the first glimpse of how you will handle a loan or line of credit. If you are late or deficient on payments, it’s highly unlikely a bank or lender is going to give you money for your business. A score of 700 or higher is a solid benchmark to set for any entrepreneur looking for financing. Second key factor is the net worth of the entrepreneur. Really simply put, add asset minus liabilities determines your net worth. If you have little or negative net worth, it is difficult for a lender to approve a business loan.

The third factor is the level of experience the entrepreneur has in the sector of business proposed. If the entrepreneur has little or no experience, a strong business plan may help with the approval. It’s also important to avoid multiple loan applications and instead do proper research and then apply to the lender best suited to you.

Getting financing for your new business can be blinding with optimism, but it’s important to consider the pros and cons of each method. Every entrepreneur should evaluate and plan for proper financing depending on their business. For more information feel free to contact Phoenix Management and get advice on which method would be best for you and your business.