You want to see your passion come to life in the form of your Startup! You want to build a viable company based on your dreams to change the world! You are excited to see your idea come to fruition. Hold your horses!!! This may all sound romantic to you as you plan to pursue your passion but unless you are a small service startup, you’ll need financing to make your dream become reality. It’s no secret that startups struggle to get financing.
To understand the financing process, entrepreneurs and business owners must put themselves in the lender’s shoes and understand their point of view. So, what are the lenders’ main concerns:
- Financial Stability of the company: Demonstrated through historical financials, which a startup doesn’t have.
- Existing Assets: Any equipment or valuable that can be used as a security, which startup is yet to build/acquire.
- Ability to repay the loan: Measured by the company’s Revenues and Cashflows. Historical data comes handy in here as well but the ability to pay can be justified by forecasted financials.
Don’t worry yet! Several lenders provide business loans and start-up financing. A solid yet realistic Business Plan is the key to getting your financing approved. Follow these 4 tips to increase the odds of getting your funding approved:
- Growth Potential: A detailed projected financial plan is the most important part of the business plan. Lenders give attention to the growth potential of the company. Show steady growth forecast driven by realistic assumptions around the available demand of your product/service.
- Projected Cash-flow: Cash is indeed the King! Cash is the lifeblood of any organization and without cash, there is no business sustainability, no matter how profitable you are. Make sure your lenders have realistic projected cash-flow forecasts of the business. The lender pays utmost attention to this as that determines the company’s ability to pay back the loan.
- Personal Credit History: Since your business is new and doesn’t have a history, lenders will rely on your personal credit history. Make sure you have a strong credit history and make sure you are making all your loan and interest payments on time.
- Strong Management and Staff: A strong history of company personnel with a history of managing related or other businesses also provides comfort to the lenders. That proves that the people managing the business has experience of managing and growing businesses and can deal with potential future challenges.
Lenders also look for criminal records, residency, and other things. Make sure you are attentive to the lenders’ request. Do you have questions about funding for startups? What aspect of business planning would you like more information on? Let me know in the comments.