As a small business startup, you may run into a few problems when attempting to obtain capital. Obtaining capital for a small business startup can be difficult but it isn’t impossible. There are a few options you can take advantage of. However, you will need to prepare yourself before you explore these options. As a small business startup owner, you should be aware of the problems you may run into so you can combat them. Here are 3 problems you may run into when trying to obtain capital for your small business startup–
- Inability to Meet Credit Requirements – Having good personal credit is critical when you are starting a new business. Obtaining capital for your small business startup will rely largely on your personal credit history since your business doesn’t have a track record. If your personal credit is damaged, it will decrease the number of funding options you can take advantage of to fund your small business startup. You may have to use funding sources outside of debt financing if you lack good personal credit. This includes your personal savings or borrowing money from friends and family. If that isn’t an option, you first priority should be rebuild your personal credit history.
- Lack of Documentation – Some lenders will require you to submit supporting documentation with your funding application. Not only will they check your personal credit, they will want to know more about your personal income. To learn more about your personal income, they will ask for your tax returns and proof of employment. If you haven’t filed taxes in the last year or two (for any reason), you will have to take care of that before you apply for funding for your small business startup.
- Lack of a Track Record – Small business startups are new. Therefore most don’t have a track record if they are less than one year old. Having a young business does limit the number of funding options you can take advantage of. If you don’t have any personal savings to invest or can’t get friends and family to let you borrow the money, your only option will be debt financing, in most cases. Without a track record, the only types of funding you may be able to get for your small business startup is unsecured business lines of credit or SBA microloans. Unsecured business lines of credit require you (or someone affiliated with the business) to have good personal credit. SBA microloans require that you have tax returns for at least the last year to prove your income. You can prepare yourself by working on your personal credit (if needed) and making sure you have all of the supporting documentation you need to prove your income.