When looking for funding for your business, these five important steps can help you in your search.
1. Prepare or Update Your Business Plan
Your business plan is the roadmap investors require to learn what makes your business fundable, how you’re doing currently (if you have an existing business), and what you plan for the future. Even if you have a startup and plan on approaching only family and friends for seed capital, creating a business plan is critical to ensuring you are on track to reach your goals and that you have a solid plan for getting there. It is also key to guiding your business strategy as your company grows. To make sure you’ve included all the necessary points in your plan, see 10 Things to Consider When Reviewing Your Business Plan.
2. Look Over Your Credit Report
A good credit score is important in gaining a borrower’s trust. With a strong credit report, the lender gains confidence in your ability to return the money and meet your commitments in a timely manner. Developing a good credit report can take years, so if your personal report isn’t in excellent shape, be prepared with answers and explanations. For more, see Reviewing Your Credit Report: Get the Facts Straight.
3. Do Your Research
Next, start talking to your local banks about loans and terms. Banks typically give term loans and credit lines. For startups that don’t yet qualify for bank funding, approach family and friends, and determine how much of your own savings you can contribute. If you run a scalable business in a high-growth industry, look into venture capital and angel investors. These investors will offer you capital in exchange for an equity stake in your business.
4. Ask for Referrals
One of the best ways to find investors is by referral. Referrals provide a warm introduction to lenders and investors you might not otherwise have access to. You can get referrals from colleagues, other entrepreneurs, family, and friends. Immersing yourself in your business community by attending networking events and joining trade associations often provides a path to potential investors.
5. Get Feedback from Your Lender or Potential Investor
If your loan application or appeal to investors is not accepted, try to get feedback on why you were not approved. Investors or lenders who provide you with reasons why you were turned down help you change your game plan and increase your chances of qualifying the second time you apply.