By Chris Bibey
Are you interested in joining the nearly 30 million people who own a small business in the United States? Are you ready to take the leap, but wondering how to get funding for your business?
It doesn’t matter what type of business you want to start – from a restaurant to a home-based service company – it’s important to create a business plan to guide you on the path to success.
Before we get into the finer financial details, here are some essential questions to address as part of this initial planning:
- What do you need to start your business?
- How much inventory do you need?
- What type of equipment and technology do you require?
- Will you work alone during the early months, or do you plan on immediately hiring an employee (or employees)?
As you answer these questions, it will become clearer as to the process you should follow and how much money you may need to reach your goals.
What is a Business Plan?
The U.S. Small Business Administration loosely defines a business plan as follows:
“The business plan generally projects 3-5 years ahead and outlines the route a company intends to take to reach its yearly milestones, including revenue projections. A well thought out plan also helps you to step-back and think objectively about the key elements of your business venture and informs your decision-making on a regular basis.”
As noted by the National Federation of Independent Business, there are seven key elements of any business plan (but you don’t have to stop here):
- Executive summary
- Company description
- Products and/or services
- Market analysis
- Strategy and implementation
- Management team
- Financial plan and projections
If you focus on these seven sections, you’ll end up with a comprehensive business plan that provides the direction you need to get started on the right foot.
While every section deserves your full attention, spend plenty of time settling on a marketing plan.
You’ll need this by your side on day one, as the way you market your company, products, and services can be the difference between success and failure.
Tip: this article on Entrepreneur.com breaks down the five most important steps in creating a marketing plan.
When creating a business plan, many decisions you make are based on your current financial situation, projections, and short and long-term goals.
For example, anyone can say they’re starting a business and they “only” need $1 million to get up and running. However, actually getting your hands on this money is easier said than done.
Once you have a solid business plan in place – even if it’s not 100 percent complete – you’ll have a better idea of how much money you need to fund your start-up until you begin to generate revenue.
Your options are varied, with many entrepreneurs immediately turning to a small business loan. These start-up business loans are available through a variety of lenders, most of which offer multiple products in order to attract new customers.
While a small business loan is certainly an idea to consider, a personal loan can be a faster and simpler way to get the money you need to finance your business plan.
Often, not only can funds be sent just one business day after approval, but many personal loans have other benefits such as:
- A variety of repayment terms to choose from, which can help you settle on a monthly payment that suits your budget and a payoff term that fits your projected business plan
- Competitive interest rates, even when compared to a start-up loan
- No origination fees, giving you the entire approved loan amount from the get-go, without any money shaved off the top for these types of fees
- Flexibility. While you can use the funds from a personal loan to finance your business plan, you can also use the loan for other expenses or debts.
Note that a business plan isn’t a requirement, let alone a determining factor, in a personal loan application. Lenders usually review each applicant’s financial situation and credit health, among other factors, when making a decision to approve or decline a loan request.
Related article: Can I Use a Personal Loan for My Small Business?
Other Small Business Financing Options
If neither a small business loan or personal loan suit you, there are other options to consider:
- Credit card: From a personal credit card to a business credit card, an approval gives you immediate access to a line of credit. Even better, there are reward cards that allow you to earn points or cash back for every dollar you spend.
- Family and friends: Depending on your relationship with family and friends, you may want to reach out to one or more individuals to raise money. When doing so, share your business plan and consider creating a legally binding agreement (this will give them peace of mind).
- Retirement account: It’s typically not suggested to dip into your retirement accounts, such as a 401k or Individual Retirement Account (IRA), to start a business, but doing so may be the fastest and most efficient way to obtain the funds you need. Before you proceed, learn more about any penalties or interest you’ll incur.
- A secured loan (versus an unsecured personal loan), such as a Home Equity Loan, if you need a larger sum of money than a personal loan offers and you’re willing to put your home up for collateral.
Borrow What You Need
When starting a business, it’s tempting to borrow as much money as you qualify for. While you’re sure to find something to do with the funds, overspending could come back to harm you in the long run.
Remember this: the more you borrow the more you have to pay back each month, thus putting strain on your company’s finances.
Now that you know ways to finance your small business plan, it’s time to settle on a strategy, obtain the money you need, and start your dream company!