MightyRecruiterThere’s more to launching a small business than renting an office and purchasing furnishings and equipment. Particularly in the early stages, start-up costs necessitate meticulous planning and precise accounting. Many new businesses skip this process, focusing instead on customers to keep the enterprise lucrative. Here are eight of the most frequently asked questions about small business start-up costs.
1. How Good Does My Credit Rating Need to Be?
You should be current on all your debts, and any unfavorable records on your credit report must be at least a few years old. Be prepared to provide a plausible reason for any negative credit marks.
2. If I Have No Experience in the Industry, Can I Still Qualify for a Loan?
Some credit-based products do not require the business owner to have industry-proven experience. If you have identified a business manager who has two or more years of background in the industry, you may still qualify for a loan.
3. What Documentation Will I Need to Provide When I Submit My Loan Application?
Fully underwritten loans require completion of all application forms, including business and personal tax returns for the previous three years, an interim tax statement after your last financial report, and business financial statements for the last three years. You will also need a business plan, projections, and assumptions on which you base the projections. Only an application is required for credit-based loans.
4. How Much Money Do I Need to Inject for a Business with Start-up Costs of $100,000?
You need to come up with 30 percent of the total cost to start your business, which is different from the loan amount. For example, if you need $100,000 to start your small business, you will be required to inject 30 percent, or $30,000, and you will then request a loan for $70,000.
5. What Does a Financial Institution Consider as Collateral?
Real estate is the ideal form of collateral. You will be required to use your home to secure the loan if you own it. That being said, you cannot use real estate located outside the United States as collateral. Inventory, vehicles, business assets, and anything you purchase with loan proceeds can also be used to secure the commercial loan.
6. Do I Need to Identify My Location Prior to Applying for a Loan?
Retail businesses must identify the geographic location because it is a factor in projections, tenant improvements, and start-up costs. Sometimes if you let the landlord know you are interested in her or his location, the location could be held for you. However, don’t sign a lease until you receive loan approval. Regardless, it’s best that you identify the proposed site in your business plan and organize your projections and expenses based on that location.
7. If I Have No Collateral, Can I Still Qualify for a Loan?
Credit-based loans under $50,000 that do not need collateral are possible. However, if you need a larger start-up loan, you will likely need security. You can mitigate inadequate collateral with a co-signer who is willing to back the loan. Additionally, existing companies with positive cash flow may be qualified for a loan without a co-signer or collateral.
8. Do I Need a Business Plan?
If you are a start-up business, you will need to prepare a business plan. For an existing business operating for two or more years, be prepared to assemble a summary of the nature and history of your company. If you plan to expand your business, you will have to define the expansion project and how you anticipate it will affect revenue positively.
Launching a new business can be an exhilarating adventure. Make sure to learn and seek advice from others in the industry to obtain the best business advice.
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