Chasing SME loans for your business
In recent years, it has been a common trend to open up an SME, or small to medium enterprise. These included everything from your mom and pop stores downtown up to a business with a few locations. Starting a business can be an exciting adventure, but one of the difficulties SME’s face include raising capital. Unless you’ve saved enough cash to cash flow the whole startup process, it is likely you will need funding to help jump start your business.
If you were a large business, you would likely have a some what easy time raising capital. However, the landscape for small to medium businesses is different due to many variables, but first, let us go over the two most common ways a smaller business can raise capital.
First is through business lending, which is when your company takes on debt to fund various projects or purchases. This is done through a bank and they will look at your financials and business plan to determine if it is a wise investment for the bank. The other option is to accept investor money in exchange for ownership of your company. Many smaller businesses choose this route because it can provide more opportunity than business lending, especially at the early stages of building your business.
One of the reasons smaller enterprises have a difficult time raising capital is lack of existence. At the beginning phase of starting a business, your business is simply an idea that has little to no track record. While you may believe in the idea or business model, lenders have to see the vision in a way that will make them money. If they feel your business is too risky, then you’ll have a difficult time obtaining lending.
Another issue your small business may encounter with more traditional lending options is the lack of assets. If you think of a mortgage, your home is the collateral that backs the note. When it’s a business, depending on what industry, you may have assets that can be used for collateral. However, when first starting out, assets are few and it could be a insufficient level to collateralize your loan.
Should you find the traditional lending out too difficult, there is the option of opening your company up to investors. With investors, you are looking to exchange equity in your company for money. This can be difficult as well because while you are giving up equity in your company, your potential investors need to be compensated for their time and money. Also, if they don’t believe in your businesses vision then they likely won’t invest. Obtaining investor money when starting out can prove difficult but it may be an alternative if you find traditional lending unfruitful.
While it’s difficult to raise capital as a small business, keep in mind that it’s not impossible. There are lenders and investors out there willing to work with you, but that doesn’t guarantee they will lend to you. To better prepare for these processes, ensure you have a very solid business plan, complete with projections and financials. From there, ensure your business path is clear and understandable, allowing potential investors and lender to view your business clearly. Raising capital can surely seem impossible, but if you start slowly and remain persistent, you can find the individuals to work with.