Financing Your Start-up Without A Business Loan
Imagine financing your start-up business without all the hassles of finding and qualifying for a business loan.
Thus, no high credit score required. No current cash flow requirements. No debt-to-income ratios and no collateral values.
Interested? You bet.
Well, it can be done and all it takes is your ability to sell yourself and your business to potential customers. And, if you cant sell your business to your prospective customers you shouldnt be in business in the first place.
Financing Your Start-Up Business:
Most businesses start with an idea then seeking financing. But, only after obtaining funding (a business loan), do they actually implement their business idea.
While this may seem like a tried and true way to get your start-up company off the ground, it is by far not the only way and in todays financial markets may not be the most prudent way either.
To finance your start-up business without getting a business loan is a simple two step process:
Step 1: Sell
In developing your business concept, you should already have identified a potential list of initial customers or at the least a concept of who and what your typical customer will be.
So, get out there and sell yourself and your business to them!
Even if you dont yet have a product or service to sell, sell it anyways. It only matters, at this point, what you can sell.
Act like you already are a big company. Tell them that your product or service will not only meet their needs but help them grow and succeed. Make realistic promises you expect that you can keep should you obtain future financing (as you will). Beg and plead if you have too appeal to whatever side of their mentality that will get you the deal make them want to work with you as the bottom line and the key to this type of start-up business financing is to close the deal.
(Side note: Dont waste your time with so/so customers; look for strong, solid customers only it will help with your financing as well as with your business in the long-run.)
Once you have a contract in hand, financing options will begin to open to you.
Step 2: Purchase Order Financing
New, small businesses have been factoring purchases orders for thousands of years. In fact, many business gurus think that purchase order financing dates back to ancient Egyptian times.
Purchase order financing is simple. When you complete a job for your customers (either ship the goods or complete a service) your business expects payment (cash). It is that future, anticipated payment that becomes a financial asset to the business. And, as such, can be leverage into cash (financing) today e.g. cash in your hand to complete that job or order.
Purchase order financing will usually cover 100% of the costs to complete that job including the costs of labor, materials and other variable costs directly associated with earning that future revenue (payment).
Approval for funding is based on the strength of your customers ability to pay and not on your personal credit score, time in business, cash flow or whatever else banks and lenders demand these days.
Get funded and then get to work completing that purchase order.
Once the job is complete and/or shipped to the customer, you receive payment, repay the purchase order advance and keep the remaining for your profit (gross margin).
Continue to sell your business, leverage your purchase orders and build profit until you have enough profits (working capital) to complete these jobs on your own.
Lets Look At An Example:
You close a deal for $10,000. But, it will only take you $7,000 in material and labor to compete that job. You factor your purchase order for the $7,000, complete the job and get paid. When all is said and done, you or your business pockets $3,000 less a small financing charge for the purchase order financing.
If you can complete this process two more times, you then have built up enough capital ($3,000 per job for three total jobs) then you will have enough cash on hand to complete the next deal without any financing at all.
Your business can only go up from there.
The goal of any business venture is to leverage a set of assets (equipment, labor, capital, knowledge, etc) to earn more in revenue then those assets cost. Thus, the hard part is getting those assets to begin with. Most new business owners think that they have to finance those initial assets with a business loan or some sort of start-up financing.
However, there are some assets that just do not require upfront cash but only a little work and the ability to get out there and sell.
Therefore, instead of trying to convince (sell to) your banker your business idea in the hopes of securing a business loan, use that effort and skill to sell to your potential customers (something you will eventually have to do anyways if you want to succeed in business so you might as well start now).
Financing your start-up business without a business loan as described here just might be the only way to receive the financing your start-up business needs in todays economy.
by: Business Money Today
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