Are you interested in joining the millions of people who own a small business in the United States? Have you put hours into planning and strategizing, finally ready to take the leap with your business? If so, then you’re probably thinking about one of your first challenges: securing startup funding.
As you prepare to look for financing, don’t neglect your business plan. No matter what type of business you want to start, whether it’s business coaching, dog walking or creating a line of jams, it’s important to formulate a business plan to guide you on the path to success.
Here are some essential questions to address as part of your 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)?
- Can you start at home, or will you immediately need a co-working, retail, storage or some other kind of space?
- What kind of licensing will you need? Does it require coursework or permitting fees?
Answering these questions will help clarify how much money you may need to reach your goals, and may help you determine how detailed your business plan should be. With your business plan in hand, you can turn toward funding your startup.
What are your startup funding options?
As you build the foundations of your business, many decisions you make will be based on your current financial situation, projections and short- or long-term goals.
For example, anyone can say they’re starting a business and “only” need $1 million to get up and running. However, 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 new business until you begin to generate revenue.
Your options for startup capital are varied; many entrepreneurs immediately turn to a small business loan. Small business loans are available through a variety of lenders, most of which offer multiple products in order to attract new customers.
You do have other options. A personal loan to start a business can be a faster and simpler way to get the money you need to open your doors.
Using a personal loan for business
One of the biggest upsides of a personal loan for a business startup is that you get same-day decisions in most cases. Other benefits include:
- A variety of repayment terms to choose from. This 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 startup loan, which can keep your budget lean.
- No origination fees with some lenders, like Discover Personal Loans, so you get the entire approved loan amount from the get-go, without any money deducted for these types of fees.
- Flexibility. While you can use the funds from a personal loan to start a business, you can also use the loan for other expenses or debts.
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.
Other startup capital options
If a small business loan or a personal loan don’t 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. Reward cards allow you to earn points or cash back for every dollar you spend which you invest in your business.
- 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 withdraw from your 401(k) or Individual Retirement Account (IRA), to start a business as the drawbacks may outweigh the advantages of being financially prepared for your future. Before you proceed, be sure to research any penalties or interest you’ll incur and consult with your financial adviser.
- A secured loan (versus an unsecured personal loan), such as home equity, 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 only what you need
When acquiring startup capital, 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, which can strain your company’s finances.
Want to dig deeper into the benefits of using a personal loan for your business? Read More