In business, there are two main sources of capital. They are from the owners and from the lenders.
In the 1st source, these usually comes from the savings of the owner, partners, and other investors.
In the 2nd source, these are usually the individual or company that doesn’t have ownership in your business. And you need to pay them whether your business will succeed or not. Example of this is business loan from banks.
When you have a good relationship with the bankers, good credit rating, and a proven track record, approval of your business loan is very easy.
But for some who are just starting and don’t have much to show, chances of getting your business loan approved is very low.
In addition to that, banks don’t lend you money when they know that you really need it. I learned this from the Entrepreneurial Finance Seminar I attended last month.
But don’t let this stop you from achieving your dreams because there are other ways to put money into your business.
And the 1st option you can try is to borrow money from:
Family and Friends
Compared to loan sharks, it’s cheaper to borrow capital from your family or friends.
When you borrow money from your family and friends, it’s important to spell out the terms. Also include plans of how you will pay them just in case your business fails.
Hope for the best, prepare for the worst.
Suppliers
When you earn the trust of your suppliers, you can negotiate to the suppliers to give you terms of credit.
Just imagine if you sold the inventories in the 1st month and pay your suppliers in the 3rd month. Terms will depend on your relationship to the supplier and the nature of the business.
If you can collect early and pay later, you can grow with their money.
Customers
Yes, you can also borrow money from your customers. Have you ever paid for something in advance? Example of these are:
- 1-year subscription of your favorite magazine or apps.
- Or a down payment for an item that haven’t been deliver.
If you do this, be sure to deliver what you promise.
Landlords
If you’re charming and the space is not rented for many years, you can ask the landlords to give you few months of grace period before you pay.
However, if the location is good and the space is in demand, please don’t be late in your monthly payments. There are many well-funded businesses that are willing to pay higher rent just to take your slot. Don’t project an image that you’re unreliable when it comes to monthly payments.
Few Words of Wisdom
Limited Capital
Notice that I used the word limited capital instead of No capital.
That is because you still need to have your own money while you’re still working on your prototype. It’s not good to borrow money just to cover up your expenses. Like what I’ve said before, expect the best, prepare for the worst.
While you’re still employed, save us much as possible. It’s okay to live “like a poor” today than to live poor tomorrow.
Trust
Trust is very important especially with your clients, customers, suppliers, employees, investors, lenders, and other stakeholders. And one way to make people trust you is to give your word of honor.
Don’t be the person who have a “nakauna ako mentality”.
When you borrow something, you must give it back to date you promise. If you can’t pay on or before the deadline, you need to talk to your lender earlier. Some of them are willing to reconstruct your loans so that you’re able to pay them. This is better than hiding to your lender.
Also, don’t be angry to lender. Keep in mind that you’re the one who ask for their help.
Everybody need and will need money in times of emergency. That is why you must protect your name at all cost. So that when you really need help, your name is enough to prove that you’re trustworthy.
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