Startup funding is a topic that virtually every entrepreneur has been introduced to at some point. Startup funding for small business in particular has become a convoluted subject. A large portion of investors today cringe at the thought of a business attempting to build a successful enterprise amid the economic hurdles that are now commonplace in the United States. That being said, innovation never dies, it simply caters to the consumer’s demands. So regardless of how bleak things are or how difficult it is to get off of the ground, there will always be a startup. Let’s cover a few fundamentals which are sure to help you in your search for new business success.
Basics of Startup Funding for Small Business
Startup funding is not like other forms of business capital lending. Unlike a business with established credit card processing and or sales, much of a startup’s qualifications are directly tied to the owner. Because the owner has their own credit score and prior consumer history, lenders will often lend based on the owner’s credibility.
However, this presents a number of issues that new businesses could experience:
- If a loan is issued based on the owner’s credibility, they are personally liable for defaulting.
- If a startup has no history (obviously) lenders view it as a higher risk investment. It is highly speculative because the business may fail.
- A business with little prior history and a lower credit score is treated as a startup, not an established business. Startup funding is given by default for these businesses.
- When a business is seeking startup capital, a plan and clear ROI is needed. A presentation can be useful here.
Let’s cover some of these and provide further clarity…
Why Are Startup Loans Utilizing The Owner’s Credit?
This is fairly common. Because a new business doesn’t have much established history, the owner’s history will be more substantial. The operating team can also be a factor that lenders will consider since it means the operation isn’t run by just one person. There are actually several steps to a startup presentation. We know that success leaves traces, and big companies like Uber received startup funding after convincing investors of their future success. We’ll cover how they did so later on.
To briefly cover the idea, remember that while the process of applying for startup funding can certainly feel robotic, there are still real people behind lending operations. They are going to evaluate the risk involved and determine if your enterprise is worth funding. This should be a sobering but realistic expectation when approaching the topic of startup loans. A loan broker is becoming commonplace because startups need capital, and the broker knows how to get it for them.
Is It Right For Startups To Be Considered ‘Risky’?
Yes and no. A startup is just “starting up” which means it doesn’t have a track record of success. Risk is present for everyone involved, especially the lender. To minimize and mitigate risk, a reliable operator of the business must be present, and a solid business plan is needed. It should be noted that debt is not to be taken likely. It can quickly ruin your credit score and stall your progress towards your financial goals if not handled properly. Assuming you are structuring your startup right, and have research to back its industry, you have a higher chance of success.
Why Are Established Businesses Being Categorized As ‘Startups’?
An “established business” must have the qualities of a successful business. Here are the most obvious signs that a business is “established”:
- Has sales history. (Credit card history especially)
- Business has actual operational history.
- It has established business credit. This usually means the business has handled debt before.
If a business doesn’t have the qualities of an established business, even if it has been in business for years, it is considered a startup.
What Kind Of Presentation Is Needed For Startup Funding For Small Business?
A few things need to be shown during a presentation for startup funding:
- Plan of action
- Market demand
- Valuation
- Projected growth
- And more!
Each of these stages are certainly not always necessary to secure startup funding, because they are common for new enterprises.
How Do Loan Brokers Fit In For Startups?
As it turns out, when the economy isn’t so good, investors become more skeptical and interest rates rise. This means it is harder to qualify for loans and acquire startup funding. However, nothing is impossible for a startup with million-dollar ideas and a well-outlined plan. Money isn’t worth more than the people giving it. Building trust and increasing the number of contacts you have is vital. In the information age of commerce, it isn’t “what you know” that makes you wealthy. You get wealthy based on “who you know.” The difference is subtle but incredibly important!
Startup funding is going to be an ever changing field. Times have changed, and the level of detail that investors or lending agencies want to see has evolved. It isn’t about just having a wonderful idea, it is also about proving that you know how to make money off of that idea. Getting capital to fuel your enterprise is critical for most startups, but it isn’t everything. Build a team, research different ways to finance your endeavors, and learn how to build something effective. It doesn’t do anyone any good for the business to fail, so minimizing that risk is important.
Failure is simply the opportunity to begin again, this time more intelligently.
Here’s a bright idea, what if you didn’t have to fail because you knew how to avoid common pitfalls for startups?
If you have any questions or want to learn more, feel free to contact us and we’ll get back to you.
