How to Fund Entrepreneurial Business Ventures
Today many new entrepreneurial business start up with an exciting value proposition in hand. For businesses that need a small to moderate amount of funding for start-up costs, getting a personal loan may be easier than getting a small business loan. Because many entrepreneurial business ventures are prone to failure and the assets of these entrepreneurial ventures often secure the loans, most banking and money lending institutions have stricter policies for small business loans. Raising financial funding for a small business is not easy, especially during economic slowdown, as is happening in the current times.
Just for an hypothetical discussion, consider the case that if the lender runs out of the business or it looks like the business model is failing, the bank may ask the business owner to pay back the loan in full whereas that is not as likely with a personal loan. Here are some suggestions on how to obtain a personal loan from sources other than traditional banks and how to use the money to fund your new business.
Web base Intermediaries
In many cases, internet based intermediaries have more aggressive lending policies than traditional banks. You can often get personal loans from creditloan.com and similar websites even if you have less than perfect credit. Another advantage to getting this type of personal loan is that you build a relationship with the website’s lender. After you make a good number of consecutive payments on time, usually at least six to twelve, the lender will be likely to extend you more credit if need be or lower your interest rate. Internet lending sites save consumers a lot of time because they take your information and match you with the best lender so that you do not have to do as much legwork yourself. This will save significantly on transaction costs and agency costs for the subsequent rounds of the funding in the business plan, which should unfold progressively. Also, you need not worry about investors playing with the market and affecting the terms and conditions associated with such funding.
Peer-to-Peer Lending
Think of peer-to-peer (P2P) lending like venture capitalism for small entrepreneurial joint ventures or totally funded ventures provided that there is not significantly high capital costs. One big advantage of P2P lending intermediaries is that one can evade extensive paper work such as your personal financial information, your business plan, how you plan to repay the money and other information that will help convince the lender that you are a worthy borrower. This lowers transaction costs significantly. If the borrower has a good credit rating and he can make a good case for how he intends to use the loan, he should be able to find a “golden heart” who will be willing to invest in the business.
Have a viable Business Plan
Have a viable business plan for how you are going to use the money from your personal loan in your new business and what would be the tentative cash flows. A feasibility analysis of your business plan would help you to plan in advance and thus mitigate the risks of strategic failure. This will help you both while you are applying for the loan and after you receive it. Keep in mind that a spending plan is part of your budget, but it is not exactly the same thing. Your business’s earning and spending plan should show how you are going to take the money from your loan and invest it in your business to turn a profit.
Starting a new entrepreneurial venture is always an exciting adventure. Finding the means to make your dream happen is thrilling. However, the initiator must be realistic while being adventurous. When mixing your personal finances with your business finances, things can go bad quickly if your plan does not work out as well as you hoped. As it with any financial venture, one must endeavour to start modestly and build slowly. Starting a business is much like investing, if one can lower the risk factor, then one has a better chance of staying financially viable longer. Moreover, when things do work out and you finally pay off your personal loan, that will make your business success that much sweeter.
About the author: James Shindler is an alumni of Judge Business School, Cambridge University, UK, with a dual specialization in marketing and finance. He shares a keen interest in aquatic life besides blogging and swimming. He is associated with one of the top 3 consumer goods company based out of United Kingdom.
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Category: Business
