Are you trying to raise capital? Or you want to borrow funds for a startup? If YES, here are 7 success tips to help you borrow money for your business guaranteed.
Financing a business is one of the hardest task a business owner have to go through to effect or execute expansion plans. Now regardless of whether you need to raise funds or not, you definitely need to read this article because even if you don’t need cash today; you might need it tomorrow for expansion or whatsoever.
“Capital can do nothing without brains to direct it” – J. Ogden Armour.
The primary duty of an entrepreneur is to raise capital for the business by any means necessary. Cash flow is the life blood of a business; therefore, an entrepreneur must keep cash flowing continuously into the business for it to survive.
But unfortunately, access to capital is one of the major business challenges entrepreneurs face. Now how do you overcome this challenge? Well I will advice you read on because in this article, I will be sharing with you the secret of either raising or borrowing any amount of money you want.
I have watched my business mentors raise or borrow hundreds of millions in dollars; and some even went ahead to borrow billions of dollars. In retrospect, I have also seen entrepreneurs struggle to raise a mere $10,000 in capital. Now what’s the difference between those who raise millions and billions of dollars and those who struggle to raise peanuts? You will find the answer below.
7 Success Tips to Help You Borrow Money for your Business
The first and probably the most important criteria to raising or borrowing money for your business is your credibility. Call it your track record and you won’t be wrong.
- Who are you?
- Who are your partners?
- How credible are you?
- Who have you successfully done business with in the past?
- How much have you raised or borrowed in the past?
- Were you able to back the borrowed funds within the stipulated time frame?
- What’s your personal success rate with respect to businesses you are involved with?
- Do you deliver on your promise to investors, lenders or business partners?
These are the type of questions lenders/investors go all out to find answers to. The more positive your records are, the more likely you will get the cash you need.
Competence is the next key to successfully raising or borrowing funds for your business.
- Are you the Larry Ellison, Jack Welch, Steve Jobs or Jeff Bezos of your industry?
- Are you known in your industry as a problem solver or innovator?
- How consistent has your business growth been?
- How do you handle business challenges?
These are the type of questions that tends to evaluate your level of competence. Aside the usual business plan and financial statement; investors or lenders want to see confidence and competence on the part of the entrepreneur.
Money follows good management. This statement is the truth in its entirety. Business is a team sport; so also is investing. Show me a business man who raises millions and billions of dollars with ease and I will show you a business man with a team that commands respect and strike fear in the heart of competitors.
The primary reason entrepreneurs struggle to raise/borrow money for their business is because they are trying to do it alone. Who is on your team? This is the most important question investors/banks/lending institutions want an answer to because a strong management team inspires confidence.
4. Have a solid financial base
Aliko Dangote raised about $1billion for his Obajana cement factory without stress because his business plan demonstrated his ability to payback. Afer paying back the bank loan, he went ahead to borrow $4.5 billion from the banks to build a $9billion petroleum refinery. So when raising or borrowing money for your business, make sure you demonstrate your ability to payback.
How fast is your growth plan? How long will it take you to payback your business loan with the accrued interest? How long will investors have to wait to get their money back? The lesser the time your business plan promises to payback investors; the more likely you will get the funds you need.
6. Be a brand
How long will it take companies like Apple, Coca Cola, Pepsi, GE and Microsoft to raise any amount of money they need? It will cost these companies minimal time and effort to raise any amount they want. Why? The reason is because they are recognized brands, with good management and worldwide customer loyalty. So if you want to increase your chances of raising capital now or in the future, then build a strong brand.
Lastly, having the right connections is one of the untold secrets of raising or borrowing money for your business. In fact, it’s a recipe for success in life. Raising capital is not just about having a good business plan or knowing how to sell yourself; more important is who your know.
Who’s on your friend’s list? Are you socially connected with the elites of the society? How many investment bankers or angels do you have access to? The point I am trying to stress is that who you know matters in the game of raising or borrowing money.
7 Facts You Must Know When Borrowing Money for your Business
The primary duty of every entrepreneur is to continuously raise capital for his business. Many entrepreneurs borrow money or take a loan blindly and in the end, they bite their fingers in regret. This section will explain to you basic facts you need to know when taking a loan. In the process of borrowing money, or better still, taking a loan:
A. You must know the terms of Repayment-: Some times, when small business owners borrow money, they have no choice in choosing the repayment term. When taking a loan, you have to be sure of the terms of repayment. An example of a good question you should ask is: Am i going to repay on installment or not? When you know the terms of repayment, you can strategize on how to utilize the loan you are taking.
B. You must know the Interest rate-: This is a simple but yet the most confusing subject for entrepreneurs. When borrowing money for your business, you must demand to know the interest rate or better still, get an accountant to trash the issue of compounding out. Many entrepreneurs ignorantly fall into the compound interest trap without knowing it and in the end; their entire profit is used in repaying the loan. So my best advice is, get an accountant. PERIOD.
C. You must know the loan maturity date-: Knowing the loan maturity date will help you plan how the funds will be spent. If it is a long term loan, you can use it to solve long term business needs and vice versa. The major mistake most entrepreneurs make is using short term loans to solve long term needs. This act makes them fall into the credit crunch. Be wise, know your maturity date and plan appropriately.
D. You must know the cost of taking the loan-: When borrowing money for your business, you must know the cost of taking the loan. Some financial institutions require you leave a fixed deposit with term, some might charge transaction and legal fees. By knowing the cost of the loan taken, you can tighten up your financial statement.
E. You must present endorsers-: This is a simple rule in the game of borrowing money. You must present an endorser or show your credit history. This is just to show you are credit worthy.
F. You must know the true value of the collateral you are to provide-: This is a very important rule you must not joke with when taking a bank loan. To me, it is mere stupidity to put down a one million dollar commercial building for a loan of $300,000. So before putting down a collateral, make sure you appraise it and know its actual value.
G. You must have total control over the direction and utilization of the funds-: This is a vital factor that can never be over emphasized. Control is the most important word in the world of business and investing. Some banks lend money to entrepreneurs and still try to control the affairs of the entrepreneur’s business. Some lend money to investors and still dictate to the investors the type of company stock they should buy. So be careful, control should be your watch word. It is your birth right, don’t sell it.
As a final note, I want you to know that raising capital is not only a game of skill; it’s a people’s game and no matter how difficult the process of raising funds proves, never give up.