There may be times when you will need money quickly for your business to start or to run your day to day operations. In such times, taking out a personal loan may seem to be the perfect solution. However, you will have to keep in mind the several factors before you tap into loans for young entrepreneurs as a wrong choice may end you up in a disaster.
The interest rate:
All loans will come with a specific rate of interest and if this is too high it may be difficult for you to repay. There are a few features to know about this interest rate such as:
- The rate of interest offered to you will largely depend on your credit score and your current income and
- If you do not qualify for a low-interest personal loan then it may affect your loan total on the whole.
Based on your credit and rate of interest the tenure of your loan may also vary unless you pay a considerably high monthly bill.
As for the other aspects of personal loan you must know that you will have to repay the loan on time even if your business fails or closes. In such a situation it will certainly strain your finances making it difficult for you to try and rebuild your career.
Apart from that you will also be putting your credit score at risk as there is no collateral to obtain a personal loan, in case you fall behind on your payments. You will then not get any other forms of debt such as a car loan and mortgage.
Explore all options:
Therefore, instead of sticking to personal loans only, it is wise to explore all other available options to you to start your business. As a young entrepreneur you must borrow only the amount that is necessary even if you are eligible for more. This will not only help you to repay the loan comfortably but will also help you to move forward without any encumbrances.
Therefore know about the useful and effective ways to seek out funding as a young entrepreneur whether it is a traditional loan from a traditional bank or from any other sources such as liberty lending.
As a young entrepreneur you will have a lot of added advantage when you seek such loans. Your young age will also help you to contribute to your early success. However, youth by itself can act as a double edged sword. Most young entrepreneurs usually do not have enough knowledge about the market and are therefore considered to a risky profile by the bankers and other money lenders.
Though you may be the ‘next big thing’ in the future, raise the money you require to start your own business can be really difficult without any proven track record and experience of a more established entrepreneur.
Advice to follow:
With all these possibilities kept in mind, you must follow a few advices that will help you in your funding process and also help you to march ahead in your journey.
- Find the right investors: When you want investors for your business to raise funds, asking your family and friends are the best and most logical place to start. They will know you and your abilities along with your potential and may lend money often without any interest financially and businesswise.
- Venture capital: You may also raise venture capital money but then there will be an information asymmetry issue. The VC will not know your qualities, true capabilities, and may even take control and equity of your company.
- Institutional investors: You may raise a round from an institutional investor but make sure that you have a good portion of it closed between one and two-thirds. This will result in an investment decision without you stringing along.
- Alumni network: You may also try out your alumni network if friends and other sources are not an option. Try to leverage connections with especially with those people who have started and sold businesses successfully themselves.
When you know the source to get your loan it is time to prepare yourself to get it now. You will have to present and prepare yourself well. For this you will need to tell the story of your business to the investors in a more compelling way. For this you will have to make sure that:
- You explain and know the problem to solve as well as the solution
- The size of the market
- The competition you are likely to face
- The progress you have on your business till date
- The future prospects
- Your team
- The business model and
- Projected financials if any.
You must also be very clear and honest to yourself regarding how much capital you need and are raising, terms of the capital raise and the ways in which you plan to use the funds for the growth of the business.
You must also speak to people that matter for your business, its growth, and also for its operation. You will be easily able to get proper networking opportunities with successful or retired serial entrepreneurs. You may get your business funded easily by these wealthy people who have started and sold several businesses in the past.
To sum up:
It is always better to seek advice from people you know and have some personal connection with as they will care about you and will be excited and willing to spend some time to coach you with their experiences. You may even get financial help albeit from a limited resource. Such coaching during your early fundraises will make you more strategic and tactical to face with the challenges that your business may face down the road. All business fundraising actions need to be taken in near real time and therefore you can get the most out of such education.
Lastly, rest assured that it is not easy to be a young entrepreneur. No matter how you slice it, finding the money to kick start your business will require a lot of time, patience and persistence.
Kelly Wilson is an experienced and skilled Business Consultant and Financial advisor in the USA. She helps clients both personal and professional in long-term wealth building plans. During her spare time, she loves to write on Business, Finance, Marketing, Social Media. She loves to share her knowledge and Experts tips with her readers.