While several individuals are losing their job and the economy still takes its sweet time to start up, there are a bunch of people looking for a solution in order to keep their lifestyle and their house. Since employers lay off people many of us think that the best solution is to start their business and become their own employer.
However, no matter what is the business you are looking for, chances are that you will require financing to make it grow. Actually, it is pretty rare to find a business idea that requires less than 10K to start (unless you go online and you have all the required competencies 😉 ). Therefore, at one point or another, you will have to sit down in front of your banker to (beg) ask for financing.
The problem is that since your company doesn’t exist yet, you won’t have much to show. The very first step is to build a financial plan before your meeting. While I will write a full post about writing a business plan, your document should include the following:
– History of the member of the company (business background, experience and expertise in the field of your new business).
– Mission/Vision along with a description of the company you are creating.
– Which kind of client you will be looking for.
– How will you provide your products/services
– Number of employees.
– Marketing plan.
– Budget to start the company.
– Projected income and expenses for the following 3 years.
Once you have explained your business plan for 30 minutes, don’t be surprised to get personal question about your background and your experience in this field. Your banker will probably take a personal balance sheet and consider your personal debts as well. Why are they doing this since you apply for your company? Because the company doesn’t really exist for them. It’s only a legal identification for tax purposes at this point 😉
Therefore, most banks will take a look at your financial obligations and assets. If you keep your day job or if you have enough liquidity to survive for at least 6 months, they will feel much more comfortable lending you money to start your project.
The idea behind this is they don’t want to be the only one taking the risk. They want to make sure you invest more than your time and expertise. They want to see you investing money in your company before they open their wallet.
Therefore, you first applications will be based on your personal financial profile. They will determine if the people behind the company number are reliable businessmen.
Depending on the amount requested, they also might require that you endorse your own company. In fact, if your company go bankrupt and you didn’t personally sign for anything, the bank won’t be able to request you the money they lent. So for most start-up, they ask for personal and tangible security (your property or investment for example). This is far from being optimal on a personal point of view as you want to separate your personal assets from the company. Unfortunately, at first, you will have to combine your resources to make sure you have sufficient funds to accomplish your business plan…
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