Many small businesses opt for a loan in order to fund their growth. Both secured and unsecured startup business loans enable startups to draw up future growth plans, make smart investment decisions, as well as diversify their existing operations. With an estimated 75% of venture-funded startups failing after five years, many business owners choose to retain their capital and fund initial costs through borrowing.
Start by building an understanding of what startup business loans are and analyze key aspects of your business before proceeding towards raising external capital. In addition, uncover some recommendations related to investment timelines so that your business does not invest too much too early.
Always Have A Detailed And Long-Term Plan
Startup business loans are funding instruments used to grow your business. Yet, before raising capital, you need to have a plan. The key aspects that you should consider include the following:
- Business plan – include long-term growth strategies for your startup and the ability to generate recurring revenue. If you only focus on the short-term goals, then you will not be able to utilize the capital appropriately.
- Account for the potential hurdles that your startup might face – these hurdles could be related to further funding, competition, regulations, as well as manpower.
- Have a plan in terms of repaying your lenders – if you only focus on the operating expenses and do not account for your interest liabilities, then your plan will be more likely to fail.
Does Your Idea Have A Market?
Keep the following points in mind when analyzing the market opportunity for your business:
- Test the viability of your business idea – often, startups decide on an idea, but there is no market for the actual product or service. The best strategy here is to invest time in conducting research about the potential market. Try and avoid coming up with solutions by searching for problems.
- Analyze the pricing structure for your idea – even if you launch a great product in the market, it is likely to fail if the pricing is not in line with market expectations.
Make Sure Your Startup Can Scale
After your business has been launched and products or services start reaching the market, you need to analyze the ability to scale the product or service. Merely raising funds is not enough, you need to consider the following points:
- Assess whether you would be able to cater to a large customer base – this is important to ensure consistent revenue growth. If you want to grow your startup, then you must be able to sell to a wide or growing target market.
- Consider whether your competitors would be able to copy – or improve upon your product quickly. If the answer to this question is yes, then your ability to scale may be affected.
Always Have a Plan B in Mind
Having a Plan B in case the original product does not succeed is important. Here are a few things to bear in mind:
- Have two or three additional products in the pipeline – so that you could manage the failure of your initial product. These additional products would be launched only in case the primary product does perform as expected.
- Use a diversification strategy – in order to counter the failure of one product. You could opt to launch multiple products right from day one, and this may help in mitigating the potential risks.
A Sensible Investment Timeline
Finally, it is vital to have a sensible investment timeline in mind. Such a timeline will help with planning for the future and all the relevant possibilities. If you are opting for startup business loans for bad credit, then you need to use these funds appropriately and define a repayment structure that accounts for higher interest rates. You will get the funds upfront, but you need to set periodic investment goals related to growth milestones like hiring human capital, investing in new machinery, and setting up new branches.
Before you raise capital for your startup, you need to spend a significant amount of time planning. You need to analyze the feasibility of your product, come up with a Plan B, determine the scalability, and also determine an investment timeline. Taking all these steps will minimize the potential downsides that your startup could face all while preparing you for the challenges that lie ahead.