One of the greatest challenges for most new businesses is securing capital; in fact, four out of five businesses fail in the first five years due primarily to a lack of capital. For this reason, it is crucial for you to create adequate start-up and reserve capital prior to starting your business.
Now – as stated, one of the most critical steps prior to building your business is to begin unlocking additional sources of working capital, and – even if you don’t anticipate an immediate need for capital, the best time to acquire additional credit and financing options is often before they’re needed. So – in order to help you identify additional sources of capital – we have created the Capital Source Checklist from which you can gain new insight into securing often overlooked money sources.
As you read through the checklist, make note of which capital sources are ones you think could be integrated into your business plan to ensure you are financially secure in your small business journey.
Capital Source Checklist
– Credit Cards: Accept any “pre-approved” credit card offers that you receive in the mail. If you have had any credit problems in the past, consider applying for secured credit cards which offer credit limits that are two-and-a-half to three times the security deposit.
– Increase Credit Card Limits: Contact your current credit card companies and ask for a credit limit increase. If you have paid your account regularly, most companies will extend additional credit to you upon request.
– Lower Interest Rates/Fees on Credit Cards: Ask your credit card companies to drop their annual fee or lower their interest rate. Inform them that you are considering using other cards that have lower fees/rates and are planning to transfer the balance over to these cards but would prefer using their card – if they lower their fees/interest rates.
– Home Equity Lines/Loans: Apply for lines of credit based on the equity in your home. One of the benefits of business financing using home loans or equity lines is that the interest is most likely deductible; however, be sure to check with your tax professional to see if this form of capital is right for you.
– Lines of Credit: Based on your personal credit history, you can establish pre-approved secured or unsecured lines of credit. Contact your bank or local lending institutions for more information.
– Life Insurance/Retirement Plans: An often overlooked source of capital is the “cash value” on life insurance policies and money held in various retirement plans. You can borrow against these cash values often at a very low interest rate. Additionally, 401(k)s generally have loan provisions allowing you to borrow up to 50% of the money in the plan without tax penalties.
– Small Business Administration (SBA) Loans: Often these loans have lower down payments, flexible overhead requirements, and no collateral needed. Additionally, SBA-guaranteed loans generally have rates and fees that are comparable to non-guaranteed loans, and some come with continued support – in the form of counseling and education – to help you start and run your business.
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