When you’re starting something small in a low-key way without wanting to make a fuss, it’s harder to find the money to get going. You may prefer a slow growth because being overly aggressive in your business makes you nervous. In which case, if it allows you to push ahead without delaying or procrastinating, then start in a low-key manner to ensure you make forward progress.
Here are some ideas to shape your thinking on how to secure funds for a new, initially low-key small business.
How Much Money Do You Require?
There are different options for finding the money required, however, it does depend on how much is needed.
Why is this?
Because, for instance, if you’re looking for money from friends and family, unless one of them is extremely wealthy, they’ll be a practical limit on the sum they could invest.
It will also be relevant about how much skin you have in the game. What we mean by this is, how much are you putting in to fund the new business? Whilst a lender may not ask, co-investors, partners, and other people certainly will.
Also, bear in mind that what you invest personally might not be a huge amount on its own but if it’s a significant percentage of your net worth, that counts for a lot.
Are You Open to Selling Equity, get a Partner, or Prefer to Borrow?
It’s a fundamental question to ask yourself about your business stance.
Is exchanging shares for investment capital worth it to you? What if the business is later worth millions and you go to sell it? You’ll have a smaller ownership stake left to offload at that point. Ultimately, the business will need to be worth more, to cash out with enough to still last you a lifetime.
You can either sell an equity stake or borrow to meet the business’ financial requirements:
When you sell shares, consider who your investors or partners will be. Silent partners don’t necessarily remain silent after they’re seeing losses and are losing patience with the lack of improved returns.
Also, if the investor is someone closer to home like a spouse, family member, or old friend, it’s easy for that relationship to go south if the business doesn’t perform as expected. To be honest, it puts this relationship completely on the line and should be carefully considered before making the request.
Borrowing the Money
Borrowing money is often the best decision.
It keeps friends and family away from the business to ensure future good relationships aren’t directly tied to its success.
The borrowing cost is knowable ahead of time and can be planned for accordingly.
Borrowing for the First Months or To Cover Multiple Years of Growth?
When choosing to borrow money to fund part of a new business, there’s the question of whether you should just borrow to cover the first few months or look years ahead?
Certainly, with any new business, there are substantial upfront expenses to get it off the ground. This applies whether you’re starting a home-based online food business or opening a small retail shop.
From there, think about whether you’ll draw a salary in the first year and the strain this will likely put on the business finances. Also, factor in whether breaking even is likely in the first 12 months or if you’ll need to cover an ongoing monthly business loss for a period stretching into years, not months?
This materially changes how much you need to borrow to cover expenses beyond the early start-up phase.
Make Sure You Can Cover Your Personal Expenses
When looking at a short-term loan to cover your personal expenses or consolidate your debt burden, find out how much it will cost you. To know this, you’ll need to have nailed down the loan period and the sum required, so get some specifics.
With short-term loans, they’re more difficult to qualify for personally if you already have some bad credit in your past. This is when using a specialist operator like New Horizons is worthwhile because they can perform a light check on your record without damaging your credit rating in the process.
Make Careful Financial Decisions from the Start
The decision of whether to seek funding and how much to ask for is one that has a long-lasting impact on your new business. You don’t want to borrow too much and pay more than necessary for that.
Similarly, it’s important to avoid borrowing too little, running out of funds, and needing to return to the well to request another loan at a later time.
Any repayments need to be affordable based on your current income and whether the business revenues need to support your salary too. Therefore, it’s helpful if you have some initial clients and revenues to provide greater certainty before finalizing how much to borrow.
While securing funds for a low-key venture is harder to do, it doesn’t always require as much. Because of this, it’s more affordable and easier to source too.