If you’re thinking about starting a new business, chances are you will need startup capital to bring your vision to life. Most new entrepreneurs use their personal savings as startup capital for their new business, according to Gallup. However, the amount of money people save has continued to decline over the last few years. That’s why it’s a strong possibility you will need startup capital (other than your personal savings) to fund a new business venture.
To get startup capital for your new business, you will need to prepare yourself. Proper preparation before applying for a small business loan or line of credit will increase your chances of getting approved. Here are a few ways you can prepare yourself to apply for startup capital:
- Build (or Rebuild) Your Personal Credit History – Your personal credit history is critical to you getting approved for a startup capital loan (or line of credit) for your new business. This means you need to have an exceptional payment history and no derogatory or delinquent accounts. Furthermore, you will need to show that you can manage different types of debts (by having installment loans and lines of credit) as a part of your credit history. Well managed, diversified accounts reporting on your credit will serve as proof to lenders that you are a low risk borrower who are most likely to pay them back on time. If you have many credit issues, you will need to spend rebuilding your credit before you approach a lender to apply for startup capital.
- Pay Down Your Debts – Depending on the type of startup capital you are applying for (a small business loan or line of credit), you may need to pay down your existing debt before a lender will approve you for funding. Having a low debt to income ratio proves to a lender that your income outweighs your debts and you’ll have enough money to live and pay them back on time.
- Write Your Business Plan – A business plan clearly defines how you will start and grow your business. It is your roadmap to success. That’s why is so important to write a business plan before you launch. It serves as a step by step guide of how you will implement your approach to running the business and building it to become the profitable entity you want it to be. It’s also good to have a business plan when applying for startup capital with certain lenders. Not all lenders will ask for a business plan, however, it’s always good to have one to be prepared. Go here if you need help writing a business plan for your new company.
- Remain Employed for at Least 6 Months Before You Apply – To borrow money from a lender, you need to be able to service the debt. Lenders will ask you for proof of income to determine if you make enough money to pay back the startup capital loan (or line of credit) on time. If you are thinking about quitting your job to dive head first into the business, I suggest waiting awhile until the business begins bringing in some revenue and you can apply for financing first.