Start Up Costs for a New Business

Before beginning any new business endeavor, you need to know how much money it will take to take it all the way through to a profitable position. If you don’t have those figures in front of you before you begin, chances are you will be unprepared when needs arise, and the business could fail. 

Many new business owners understand the importance of knowing the financial aspects of a startup. Unfortunately, too often new business owners want someone to sagely give them a magic number, and tell them exactly what they need to start a business. There is no magic number. No two businesses are enough alike to even give an estimate on a particular type of business.

Unless a company is a franchise, and controlled by a corporation it isn’t possible to lump start up costs into a category that is a one-size fits all. Getting the numbers is possible, but each new business owner must do the work to find them for themselves.

How to Determine a New Business Start Up Costs

The best way to really understand what it will take to get started and keep a business running until it can support its own operation is to create a business plan. Some new business owners try to simply assess standard costs such as the price of renting space, initial cost of equipment, supplies, phone and utilities. The problem is that even though these costs will give the owner an idea of what it will take to open the “doors” of their company whether it is a brick and mortar company or an online business, it doesn’t give them an idea of what it will cost to operate through the early stages where expenses often outnumber the profits.

The start up period does not end at the opening of the company. A business plan that covers a realistic estimate of all expenses and expected profits over several years will give the new business owner a true idea of what it will take to make their business a success. While a business plan can be broken down into weekly, monthly or yearly profit/loss budgets, it is easier to develop a weekly or monthly budget for development. Once the figures have been computed, it can be put into a typical business plan format that also includes all of the pertinent information about the company, its owner and principle employees at the beginning.

Having the initial information at the start of the business plan is helpful for lenders when a business owner applies for funding at any point in the business’ lifespan. It has a dual purpose at the start of a business, however. Putting the pertinent information down on paper helps the business owner research proper licensing, and evaluate the skills of themselves and any key personnel they are working with.

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Start Up Business Loans - An Easy Solution For New Entrepreneurs

Many individuals inherit their forefathers' businesses. In contrast, there are still many business-oriented people whose parents are salaried employees and who have to start from scratch to build up their own businesses. A considerable amount of money goes into the business even if it is on a small scale and it takes a lot of time before a particular business starts giving returns. Many new entrepreneurs' past savings do not suffice for their initial investment amount. Start up business loans provide a solution for such starters and enable them to fulfill the dream of their own businesses.

After taking a conscious decision to apply for a loan, one should have a comprehensive business plan in place, which includes the exact amount of money required and the break-up of that amount for various segments such as production, marketing etc. The more detailed the business plan, better are the chances of having an early approval and a lower interest rate. So, make sure that your business plan is affective and sound so that money lenders may get convinced with your project and lend money to you.

One can browse for multiple financing offers on the internet, where it is extremely important to go through the "terms and conditions" of a particular bank or finance company before applying for the loan. It is suggested that the borrower compares different schemes in regards with the repayment options, maturity period and most importantly, the rate of interest. Various banks have the option of sending their executive to the doorstep of the potential borrower to explain him the various alternatives available. One can also drop in at a bank with his papers to file the application.

There are two types of start up business loans: secured and unsecured. Secured loans are given against collateral such as property. These loans are generally granted at a lower rate of interest and enable the entrepreneur to borrow a larger sum. Unsecured loans, on the contrary, do not require collateral, involve a smaller sum and have a shorter maturity period as they pose a greater risk for the lending agency.

It is always advisable to consider flexible repayment options, where one may choose the amount of monthly installment on his own. This ensures an early payback if the business is yielding good returns.

Starting up a business and taking a loan involves a lot of risk-appetite but the risk should be calculated. New businesses should concentrate a lot on marketing so that they are able to sell their products or services better. However, one should not expect a lot from the business in its infancy and should not give up if the initial results are not up to the expectations. This may lead to minor defaults which can be ignored for some time. Due to the risk involved, it is better if the business is started as a partnership.

Start up business loans have helped a lot of new entrepreneurs to start up their businesses successfully and an individual can take personalized advice from loan providers before applying for a loan.

Obtain A Startup Business Loans

If you have tried or asked around, you already know that obtaining startup business loans is no easy task. Bankers are justifiably wary of lending to a startup as most startups fail within a few years. Moreover, the business does not have a balance sheet yet or a credit history. As such, a creditor will have to base the lending decision on the entrepreneur's personal credit history and the business plan presented.

Also, there are a few loans meant for startups by members of minority groups and women. Do check and see if your business will qualify for these loans, as they are easier to obtain. Of course, you need to get a certification stating that the business is a startup by a woman or a minority group member.

Even if you do not belong to this special category and have a less than enviable credit history, you can avail of a bad credit startup loan. Such loans are priced higher, that is, the interest rate you have to pay on the startup business loans will be higher. Additionally, you will need to take extra pains to convince potential creditors of the financial viability of your business idea.

Another option before a startup is contacting the small business administration for procuring credit business loans. It is easier to get the loans through this organization. However, you still need to do your homework properly. Get all your papers in order and have an excellent business plan ready with projected earnings and profits clearly stated. In case your startup is a few years old, you also need to bring the balance sheets of the last three years. If your business has its own ID, take it along to the creditors when you go to negotiate your loan. It will give your startup more credibility in the eyes of the banker and creditor.

For those who are unable to obtain small business loans, the option of approaching venture capitalists or angel investors always exists. However, this equity route has certain drawbacks as the entrepreneur has to consult their fellow partners before making major decisions. Besides, future profits need to be shared - something that will reduce the entrepreneur's share of profits.

Another solution is to approach a leasing finance company to help you purchase the equipment you need to run your startup. Since such loans are considered secure - the finance company will have a lien on the equipment - the loans are easier to obtain. Moreover, the interest burden is lower, in tune with the lower risk to the lender.

Whether you decide to go in for a bank loan or a leasing finance or use the funds provided by the venture capitalist, you need to convince the financier of the viability of your business model. For this you need to study the potential market carefully and ensure that you are meeting a felt need. Investors will also want to check out your commitment levels to the startup. If they feel that you will not put in your best efforts, they will certainly not part with their cash. So, do make sure that you are able to convince creditors on these issues when applying for startup business loans.