Do I Need To Borrow Money For My Start-Up?

You need to have enough funds to ensure your start-up’s success. It provides financial resources and backing to your newly-established business’s day-to-day operations and long-term growth.

However, most start-ups run out of funds, causing them to fail their business despite their potential exponential business growth. The latest figures show that 10% of start-ups went under within the first year, primarily due to limited cash flow.

That’s why start-ups are recommended to seek business financing. In this article, we’ve rounded up other reasons why you need to borrow money for your start-up.

Good Financial Health

Seeking external financing to get enough working capital is beneficial for your start-up’s financial health. It helps your business accomplish its work goals, including other short-term loans or unexpected costs.

It can also serve as a safety net. For example, if your start-up is seasonal, you may use the funds during dry spells. Then, instead of doing less (or nothing) during the period when your start-up is not in demand, take it as an opportunity to develop your products and services, ensuring value for your potential customers and demand in the future.

For Purchasing Business Assets

In business, assets can be human resources, machinery, infrastructures, or vehicles that are helpful to your start-up. Investing in them is necessary to keep up with the increased demands and sales, especially when your business grows.

However, as mentioned, many start-ups run out of funds, particularly during the early stages of their business. That’s where borrowing funds come into play. An asset purchase loan is one of the most common financings to take for this.

Asset purchase loans are usually used when eyeing large purchases like business cars. It can also be used to buy IT equipment, machinery, or a new office to ensure better internal infrastructure and faster production.

Business Growth

Financial backing isn’t only used to get your start-up off the ground, support daily operational costs, and purchase business assets. It’s also used to help your start-up succeed and expand in the long term.

Like investing in assets for increasing demands and sales, your start-up needs enough funds to materialize your business growth plan. It can involve product development, hiring new talent, and transferring to a better workplace.

What Are Alternatives for Bank Loans?

Most start-ups struggle to access bank financing, mainly because of poor credit and insufficient or lack of track records. They’ve become even more stringent and tightened their purse strings because of the recent stock market crash and inflation surge.

The good news is that there are bank loan alternatives available for start-ups and small and midsize enterprises (SMEs), regardless of credit and business history. Check them out here:

Microloans

The U.S. Small Business Administration (SBA) spearheaded these microloans to provide financing for those who are ineligible for bank loans, usually start-ups and SMEs. These microloans can be up to $50,000 and can be used for various purposes, including business launching, improvement, and expansion.

SBA provides funds to microlenders who disburse microloan funds to borrowers. Apart from the funds, microlenders provide training and education to help run a business, making microloans an ideal borrowing option for start-ups and SMEs.

Personal Loans

A personal loan can be a good option if you or your start-up have a not-so-stellar credit rating. They’re often provided by online lending platforms like CreditNinja and are known for their fast approval and funding.

A personal loan is also the go-to financing for many due to its flexible nature. Borrowers can use it for any financial purpose, including covering the operational costs of launching a start-up.

Reasons Why Your Start-Up May Not Be Funded

Having no clear and compelling vision is one of the reasons why your start-up doesn’t attract the attention of lenders (or investors). It happens either because you’re unsure of what your business wants to achieve or you’re unable to convey your vision in a way that gives security to the lenders.

Although there are many recent changes in the start-up funding landscape, a well-defined business goal is still what resonates with lenders. Hence, before applying for a business loan, formulate a pitch articulating a grandiose business statement backed by a detailed business model and market strategy.

Poor financial planning is another possible reason your start-up may fail to get funding. Apart from having a solid business plan and understanding of your target market, ensure a realistic budget. Avoid inflating your numbers or assuming unrealistic figures about future revenue to avoid tarnishing your credibility with the lenders.

Final Thoughts

Running a start-up is a risky venture. Despite having well-thought-out and best-laid plans, things still fall apart and may go south. Thus, it’s critical to have backup plans, and seeking financing is one way to do that.

Read Also:

• Business Management Tactics: Chasing Success as a Startup
• Tips On How Business Owners Can Stay Out Of Debt
• Is Hard Money the Same as No Money Down?