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How to Write a Proposal Letter.

A proposal letter is a professional letter that states, in an abbreviated form, why an organization, institution, or company should support a professional venture of yours. You might write a proposal letter for a number of reasons—for example, to request a grant, a business loan, or that a publisher accept your book idea. There are general formats, details, and arguments you should make in each instance, although the specifics will vary based on the recipient’s requirements. In all cases, however, you must be succinct, informative, and persuasive.

Method 1 Writing a Grant Proposal Letter.
1. Review the eligibility guidelines so you can offer proof throughout the letter. Most public and private organizations that issue grants for research or other projects have a detailed list of eligibility requirements. You must meet these requirements to be eligible, and you must confirm to the organization that you meet these requirements.
Check the organization’s website or call or email them to get complete and up-to-date eligibility guidelines.
Instead of dedicating an entire paragraph to explaining how you meet each requirement, weave this information into the body of your letter as you write it. For instance, if the organization has certain requirements concerning the types of projects the money can be used for and separate requirements for how that money will be allotted, describe these issues in separate paragraphs instead of trying to cram all the information into one.
2. Introduce your organization to an appropriate degree in the first paragraph. If you are not in regular contact with the grant organization, you should introduce your organization in fairly substantial detail in the first body paragraph of your letter. For instance, provide the name of your organization, what it does, why it does it, and who benefits from your organization's work.
If you have had previous contact with the grant agency or organization, don’t rehash basic information the recipient already knows. Instead, mention any changes or developments your organization has made since you were last in contact.
3. Explain your need for the grant and its importance to your organization. Make this the central focus of the second body paragraph. Tell the recipient what your organization hopes to accomplish and what group or groups in society are the focus for your efforts. Also explain why your research, charitable effort, or venture is important and what sort of outcome you are expecting to have.
Balance optimism and realism in this section and throughout the letter. Don’t make outlandish claims like “ending poverty” with this grant. Instead, explain how the grant will help “alleviate food insecurity for at-risk children both before and after school hours.”
4. Provide a timeline and other practical details on how the grant will be used. In the third paragraph, include realistic content about the timeline your project will require, the locations you will operate in and/or impact, and similar information.
State when the project will begin and how long you expect it to run. Be as precise as possible: “If the grant is approved, we intend to operate the program from August 25, 2020 through August 24, 2021.”
Some grants are location-specific. If this is true of the grant you apply for, you will need to indicate where your organization is based, the geographic area that will be studied during your project, or the geographic area that will benefit from the project.
5. Mention how much the project will cost and how much grant money you are requesting. Be as specific as possible so that the grant organization can get an idea of how crucial its funding is. Provide this information in its own paragraph or integrated into the prior paragraph on grant use details.
Particularly if you are applying for a grant without a pre-determined funding amount, be sure to state precisely how much money you are requesting.
Be precise in your cost estimates and provide supporting documentation as enclosures in your application packet, as per the organization’s application instructions.
6. Include any additional information requested in the application instructions. The grant agency or organization may require additional information that should be included in your proposal letter, or it may require separate documents as enclosures in your packet. Refer to the application instructions carefully and frequently, and contact the organization whenever you have questions or need clarification.
Additional documents may include financial budgets, past financial records, and past records indicating the success of similar projects performed by your organization in the past.
Make sure your grant request isn’t delayed or even rejected because you failed to provide a required piece of information.

Method 2 Writing a Business Financing Proposal Letter.
1. Refer to any prior contact at the beginning of the letter. If your business is already established and has a previous relationship with the lender or funder you are contacting, be sure to mention that prior contact. This doesn’t guarantee success for your current request, of course, but it may strengthen your status as a “good bet.”
If you interacted with a specific contact at the company, mention that individual by name. For example: “Nearly seven years ago, I worked with Jane Goodson at your company to help secure the funding that got my business off the ground.”
2. Discuss the size, scope, and focus of your company. Include your mission statement and a short description of the products or services your company provides. To make your case for funding more convincing, also include details like the number of customers served, the number of employees, and information about any administrative boards.
Providing a brief summary of your business helps the funder get a better understanding of who you are, what you do, and why you are a good choice for funding.
Aim to spend 1 paragraph on this content, in most cases.
3. Pinpoint the amount of funding you need and why you need it. Take a paragraph to both identify precisely how much funding you are requesting and explain why you need financial help from the funder. Describe what, specifically, the funding will be used for.
For example: “The $50,000 loan we are requesting will enable us to expand production in our highest-profit product range and grow sales by an estimated 20% within 2 years.”
You may need to include budget data that spells out how funds have been used in the past and projections on how the funds will be used this time around. This additional data may need to be included as a separate attachment.
Regardless of how much information you include in the body of the letter itself, you should always state the total cost of the project and how much of that cost will be covered by the funder's support.
4. Explain how you will use the funding, specifically but succinctly. You need to provide enough information about how the provided funds will be used to make the prospective funder curious and excited by the prospect. Provide key highlights in a paragraph, mentioning specifics but not going into excessive detail.
This should only be a summary. With a full-scale proposal, this information can take pages. This information should take no more than a half page when writing a shorter proposal letter, however. Provide separate enclosures as needed.
5. Offer to provide additional details at the close of your letter. Since a proposal letter is shorter than a full proposal, make it clear that you are willing and able to provide additional details as requested. Do this instead of sending excessive amounts of information that has not been requested with your proposal letter.
For instance, you last sentences might read: “Should you need any further information, please feel free to contact me directly by phone or email. I would also be happy to meet with you at your offices.”
6. Include any necessary enclosures with your packet. Check over the application requirements again. If the prospective funder requires additional documentation along with your proposal letter, include it in the envelope as an enclosure. Note the enclosures in your proposal letter.
Possible documentation might include a list of board members, copies of your tax documents and financial documents, and resumes of key staff members.

Method 3 Writing a Book Proposal Letter.
1. Check the submission guidelines before starting the letter. Every publishing agency and publisher has its own set of submission guidelines. These can usually be found on the publisher's website—if not, call, email, or write to the company and request a copy of their guidelines before proceeding.
Submission guidelines outline the types of books a publisher or agent will accept, as well as the required format and content for the proposal letter.
2. Spend the first few paragraphs describing your book. Right from the start, you need to convince the agent or publisher that the book you want to submit will be successful in the marketplace. In the first paragraph, use around 300 words to write a brief but intriguing summary of your book. Write a second paragraph that describes the essentials of the book, such as genre, word count, and likely market.
If you’re writing fiction or creative non-fiction, outline your narrative and describe your main characters in the first or second paragraph.
State whether or not the book is finished at some point in these opening paragraphs. Note, however, that some publishers will not accept proposals for unfinished works.
3. Identify your expected target market and competitors. Use a paragraph to thoroughly describe the demographic your book is aimed at. If possible, provide provide statistics and make sure they address your target demographic in specific, rather than general, terms.
Perform a competitive analysis in this section. List a few main competitors to your book, explain how well these competitors do in the market, and describe why your book will offer something its competitors do not.
4. Provide biographical information, especially in relation to the book’s subject matter. Describe yourself and explain why you are the perfect person to write this book. Don’t fabricate or exaggerate details, but do put a positive spin on your personal bio.
Mention any writing experience and publishing experience you have.
Mention any experience you have with your book’s subject matter. For instance, if you’ve written a book about fashion and have experience as a fashion designer, include that in your letter.
5. Summarize your intended role in the marketing plan. Provide specific information about what your plans are concerning the promotion of your book once it gets published. Be specific, not general. Do not state what you are willing to do, but rather what you will do.
Instead of writing “I would be willing,” for example, go with “I will.”
Possible forms of marketing include professional blogs, book signings, and professional conferences.
6. Include a more detailed synopsis as a separate enclosure. You will usually need to include a 1-2 page synopsis that describes your book in fuller detail than your 300-word summary at the start of the proposal letter. Unless otherwise directed, include this as an enclosure, not as part of the main body of the letter.
Provide a full summary of the entire plot and purpose of your book. Include all the major details about the plot and significant sub-plots.
7. Enclose a sample table of contents and an extract, if requested. Some publishers expect you to send along a table of contents, an extract from the work, or both. Follow the specific submission guidelines provided by the publisher, and get clarification if needed.
If you do not yet have a table of contents, you may instead need to provide a brief summary of each chapter.
Some publishers and agents will request the first few pages or chapters of your book. Others may not specify which part of the book the extract needs to be pulled from. Regardless, the extract should be an example of your strongest writing.

Method 4 Formatting the Letter.
1. Start by placing your address at the top left of the letter. In the upper left corner of the letter, write your street address on the first line, then the remainder of your address (such as city, state, and ZIP code in the U.S.) on the second line. Left align the text (here and throughout the letter) and single space between lines.
You do not need to include your name or title in the return address, since this information is provided in the closing section.
Do not type out the return address at the top of the letter if you are using paper with a formal letterhead that already includes the address.
2. Include the current date below your address. Double-space after the return address and type the current date in "month-day-year" format in the U.S., or “day-month-year” in nations that typically use that format. The month should be spelled out, but the day and year should be represented by numerical values.[
For instance, write “October 8, 2019” (month-day-year) or “8 October 2019” (day-month-year).
If you are not using a return address because your paper has a formal letterhead, the date should be the first piece of information you add at the top left.
3. Type in the recipient's name, title, and address. Double-space after the date, then use a single-spaced line for each of the following: recipient name; recipient title (if applicable); recipient street address; recipient city, state, etc.
Alternatively, you can put the person’s name and title together on one line—for instance: “Mr. Thomas Jones, Director of Operations.”
Use the person’s personal title—Mr., Ms., Mrs., Dr., etc.—if you know their preference. It’s generally acceptable to assume “Mr.” for a male and “Ms.” for a female. However, you can instead choose to exclude the personal title and write “Thomas Jones” instead of “Mr. Thomas Jones.”
The entire block should be left-aligned and single-spaced.
It’s preferable to write to a specific individual at a company instead of writing a general letter to anyone who may read it.
4. Include an appropriate salutation to the recipient. Double-space after the recipient's address and type the salutation "Dear" followed by the recipient's personal title and last name. End the salutation with a colon, not a comma: “Dear Ms. Amy Watson:”
If you do not know the recipient's preferred personal title and prefer not to assume either “Mr.” or “Ms.”, skip the personal title and use the recipient's full name: “Dear Amy Watson:”
Double space after the salutation as well.
5. Write the body of your letter using single-spaced block paragraphs. The exact content and length of your proposal letter will of course vary depending on the type of proposal you’re writing. The format of the letter should remain the same for each type, though.
Single space and left justify each paragraph.
Do not indent the first line of your paragraphs.
Double space between paragraphs.
6. Use an appropriate closing and signature. Double-space after the final body paragraph and include a formal closing, followed by a comma. Hit the "Enter" key four times before typing your full name and personal title—this blank space is for your signature.
Capitalize only the first word of your formal closing—That is, “Thank you” instead of “Thank You.”
Common closing options include “Thank you,” “Sincerely,” “Regards,” “Best regards,” and “Best wishes.”
Add a comma after the formal closing.
7. Mention any enclosures below your signature and name and title line. If you send any enclosures with your proposal letter, like a resume with an employment proposal or financial information with a business proposal, indicate this by double-spacing after your typed name and title and typing "Enclosure” or “Enclosures.”
You also have the option of listing each document you are enclosing. Use the following format: “Enclosures: resume, writing sample, 3 letters of reference.”
8. Review the letter for spelling, grammar, and formatting errors. Run your finished letter through a spell-check program, but don't stop there. Read it out loud to check for any awkward phrasing or grammar errors. If possible, have someone else read through it as well, since they may spot errors that you've missed.
Don't let a silly spelling error or misplaced comma reduce the impact of an otherwise carefully-crafted letter. Proofreading is important!

FAQ.

Question : How do I write a proposal for a musical tour?
Answer : dentify the potential donors and outline your plans for the tour, including the bands involved, the venues where you will be playing, and an estimate of the upfront costs and potential profit. If this will be for charity, clearly identify the cause.
Question : How do I write a proposal letter to the ministry of safety, wanting to supply them with stop signs and police gear?
Answer : A proposal is generally understood to mean something the receiver has not yet thought of. "Dear city council, after reading your urban planning blueprints, I propose to plant more trees" rather than "I see you're looking for trees and I want to sell you some." Governments are typically bound by public tenders when they buy equipment, so if you want to sell signs and gear, you have to submit your offer when they issue a tender and hope yours is the best of all offers received.

Tips.
If someone else typed the letter for you, double space after the enclosures line and include their initials. For example, add “HU” if Hilary Underwood typed the letter for you.
April 07, 2020




How to Finance a Business.



When it's time to finance a business, there can be substantial work involved to facilitate this step. Every small business is different, and businesses in different industries and sectors have different ways of going about getting credit. There are various costs which widely range over the span of particular sectors. However, for the core process of securing the financial assistance that a business owner needs for a start up, some basic guidelines and principles will help create effective programs and a solvent business model. Estimate the costs of doing business, find out what you need to borrow money, and then research your financing options.





Estimating Costs of Your Business.



Determine the one-time costs of your business. These are costs that will only occur at the very beginning of opening your business. These include mileage (getting to a location), market research, advertising, and training. You will also need to look up any fees which will occur, such as a lawyer or consultant fee.



Calculate the recurring costs of your business. These are costs that you will have to pay over and over again, usually on a weekly, bi-weekly, or monthly basis. These include costs of utilities, insurance, wages, etc. Recurring costs are generally larger than one-time costs, and span a length of 10-30 years depending on your financing options. Calculate not only the total cost over the lifespan of your business, but also that on a yearly, and bi-yearly basis.



Ascertain whether costs are fixed, or variable. Fixed costs are those which will not change. The cost of your utilities, or your administrative costs are all fixed. Variable costs are those which will change over time. This includes wages, insurance, and shipping/packaging costs. The best way to keep all this information organized is to create a spreadsheet (use Excel). That way you can graph out this information, and view it multiple ways(bar graph, line chart, etc.).



Create a balance sheet. If you are just starting a small business, it is important that you write out balance sheets, which include: assets, liabilities, and equity. Each of these three categories will help you keep track of the finances of your business, and make it easier to pay your bills.

Assets = current assets(cash, accounts receivable, notes receivable, inventory) + fixed assets(land, building, machinery, furniture, improvements) + intangibles(research, patents, charity, organizational expense)

Liabilities = current liabilities(accounts payable, accrued expenses, notes payable, current long-term debt) + non-current liabilities(non-current long-term debt, notes payable to shareholders and owners, contingent liabilities)

Equity = Assets - Liabilities



Develop a cash flow analysis. This measures money which goes in and out of your business. This is then broken down into operational activities, investment activities, and financing activities. This analysis will help you determine when you break even, and can start reinvesting/expanding your business. Once more, the best way to do this is to create a spread sheet. Find all of your financial statements and gather them together before you start to analyze.

Operational = net income, loses of business, sales, and business expenditures.

Investment = purchases and sales of property, assets, securities, and equipment.

Financing = cash flows of all your loan borrowing and repayment.







Borrowing Money for Your Business.



Use equity financing to start your business. Equity financing usually comes from a primary investor, or other business. They will provide you a sum of money, in exchange for part-ownership of your company. This is a good option because investors look further down the road than a loan company, and you will have more money on hand. However, the investors will naturally want to interfere, and change aspects of your business model.

There are networks online which can set you up with a primary investor.

You can also check out private equity firms, which contain a vast array of specialized and experienced investors.

Remember, that small business owners generally use very little equity financing. It all depends on your business model, and the potential for growth.



Start your business using debt financing. Debt financing is when you take out a loan, usually from a bank or lending institution. This is a great option because the bank will have no say in how you run your business. The loan is tax deductible, and you can get short-term or long-term loans. However, you must have the loan repaid in a certain amount of time, and if you don't, you could have a hard time getting capital investment.

Talk to your local bank, or lending institution about the qualifications for specific loans. You will probably have to fill out some paperwork to determine whether or not you are qualified.

When using a local bank, you may be able to set up a personal relationship. This way, you can postpone a few payments if you fall on hard times.



Find out about credit scores and ratings. The higher your score is, the less risky you are to investors. In many cases, the initial business loan will be based on the borrower's own personal credit score. However, in some cases where a business is already operational, a business plan and other documents can provide for a different kind of credit specifically for the continued operations of that enterprise.

Use the online company TransUnion or EquiFax to determine your credit score. It is important to get an independent analysis, otherwise your own calculated score could be biased.

The main focus of the score is how long you have maintained a credit line, and how many monthly payments you have made on time.

If you have no prior experience taking out credit, it may be hard to get a loan. It is best to start using a credit card on small things like gas, or grocery store trips. Then gradually build up. Show the creditors you are a responsible client.[12]



Maintain an adequate debt to equity ratio. You want to make sure that the total debt and liabilities of your business is no more than four times the equity in the business. Equity simply means any retained earnings and cash injections by investors. In order to start out with equity, the owner of the business usually has to put in anywhere from 20-40%. This will maintain an adequate debt to equity ratio, and allow you to get a loan.



Put up collateral to start your business. Before you get a loan, the lending institution or bank will ask for collateral. This means you risk some of the items you own. In the case you cannot repay the loan, the bank can seize your property. Collateral usually includes homes, cars, furniture, equipment, stocks, bonds, etc. this is a scary proposition, so you need to be sure that your business will be financially successful beforehand.



Shop around for different lenders. There are a variety of lenders who may or may not be willing to issue new business loans, and all of these potential lenders have their own terms and conditions. Talk to various lenders and ask them about what kinds of loans are available. Evaluate loans by timeline. Lenders will offer various short-term, long-term or revolving-credit loans to business owners. Look at which ones suit the needs of a startup the best.

Look at secured and unsecured business loans. Secured loans actually use existing assets as collateral. For example, the person trying to start a business can use his or her home, or other property, as collateral and get lower interest rates for the loan. However, this leaves the assets vulnerable to seizure in cases of nonpayment. Unsecured loans rest solely on the borrower's credit score. See which of these types of loans best matches desired risk.

Select the best deals. You want a loan that has the lowest interest rates and most favorable terms for repayment.









Financing Your Business.



Get a bank loan. Small, local banks have received more strict standards after the financial crash of 2008. However, large investment banks such as JP Morgan Chase and Bank of America have received a set of moneys from the Federal Reserve to lend out to small businesses. This is your best option to go with, although it takes the long to pay off. Local banks will set you up with a contract, and a monthly payment. The other benefit is that you can get this loan postponed if you are having trouble paying it off.



Place your home up as collateral. Banks will generally allow you to borrow up to 75-80% of your home's worth, as long as you have at least 10-15% already down on your home. This is great because the loan will have a much lower interest rate than a credit card. Talk with your financier, or local mortgage company for more detailed information.



Use your credit card. This is a very dangerous game to be played. You need to stay on top of your monthly payments. If you fall behind, you get trapped in a death spiral. However, when carefully managed, credit cards can be great to get out of an emergency. Only use a credit card occasionally, when you are experiencing a hole you know that you can get out of.



Tap into your 401(k) plan. You will need a financial expert who can start up a C Corporation which you can then roll your retirement assets into. This is also a risky business, because you are tapping into your nest egg. This should only be done if you have more money put away in a savings account, or if you are independently wealthy.



Try loaning money from your friends and family. Ask who would be willing to make a contribution, or purchase a percentage of the company. Go about asking members of your church for donations. Let local businesses to partner with you. You might make some acquaintances, and make some deals (you make cheese, they make wine, a chance to exchange).



Pledge your future earnings. Some companies, or peoples, are willing to gamble and put money upfront, if you are willing to commit a certain percentage of future profits. This is a gamble because they, and you, are betting that you will be able to earn enough in the future. There is usually a contract involved, guaranteeing that they will at least get some money back, so keep that in mind.



Kickstart your business. Crowd funding, in the age of the internet, has become a very popular way to finance businesses. Write a description of your business idea online, at sites like Kickstarter, and convince people to donate to your business. You will want to be really descriptive, and excited in your word choice. The downside of this is that it could take months or years before you raise enough money.



Secure an SBA loan. SBA (Small Business Administration) is a branch of the Federal Government that supplies loans to businesses struggling to get off the ground. However, there are a number of qualifications. You had to have been denied a loan from another bank before. You have to meet the government's definition of a small business. You will also have to meet other restrictions, depending on the type of SBA loan. Go to the SBA's website, and fill out a form if you think you might meet these qualifications.



Attract an angel investor. These are wealthy individuals who like to bet on the financial success of start-up businesses. Angel investors are usually found at private-equity, and venture capital firms. You will want to bring someone older, who looks like he has had experience in business before. Be passionate about your idea when you present, and know all of the financial details before you walk in the room. Keep in contact with the investor days and weeks after your initial meeting.





Tips.

Talk to numerous lending institutions before you pick a loan. Some will have better interest rates, while others will have better repayments.

Consult with family members first. Getting a small loan from them can avoid dealing with greedy credit lenders.

Get some experience in the business before you start your own. If you want to start a restaurant, make sure you have worked in a restaurant before. If not, you will wind up purchasing outside help which will cost you astronomical amounts of money.



Warnings.

Talk to a lawyer and a financial advisor to avoid colossal mistakes. The biggest regret of many first-time small business owners is not consulting with a professional before they begin the process.

If you are a person living paycheck-to-paycheck, it is best to wait to start a small business. If the business goes down hill quickly, you could lose your assets, and your life savings.

Take a year to save up money and make a detailed plan. You do not want to go into small business owning head first.


November 13, 2019




How to Finance a Business.



When it's time to finance a business, there can be substantial work involved to facilitate this step. Every small business is different, and businesses in different industries and sectors have different ways of going about getting credit. There are various costs which widely range over the span of particular sectors. However, for the core process of securing the financial assistance that a business owner needs for a start up, some basic guidelines and principles will help create effective programs and a solvent business model. Estimate the costs of doing business, find out what you need to borrow money, and then research your financing options.





Estimating Costs of Your Business.



Determine the one-time costs of your business. These are costs that will only occur at the very beginning of opening your business. These include mileage (getting to a location), market research, advertising, and training. You will also need to look up any fees which will occur, such as a lawyer or consultant fee.



Calculate the recurring costs of your business. These are costs that you will have to pay over and over again, usually on a weekly, bi-weekly, or monthly basis. These include costs of utilities, insurance, wages, etc. Recurring costs are generally larger than one-time costs, and span a length of 10-30 years depending on your financing options. Calculate not only the total cost over the lifespan of your business, but also that on a yearly, and bi-yearly basis.



Ascertain whether costs are fixed, or variable. Fixed costs are those which will not change. The cost of your utilities, or your administrative costs are all fixed. Variable costs are those which will change over time. This includes wages, insurance, and shipping/packaging costs. The best way to keep all this information organized is to create a spreadsheet (use Excel). That way you can graph out this information, and view it multiple ways(bar graph, line chart, etc.).



Create a balance sheet. If you are just starting a small business, it is important that you write out balance sheets, which include: assets, liabilities, and equity. Each of these three categories will help you keep track of the finances of your business, and make it easier to pay your bills.

Assets = current assets(cash, accounts receivable, notes receivable, inventory) + fixed assets(land, building, machinery, furniture, improvements) + intangibles(research, patents, charity, organizational expense)

Liabilities = current liabilities(accounts payable, accrued expenses, notes payable, current long-term debt) + non-current liabilities(non-current long-term debt, notes payable to shareholders and owners, contingent liabilities)

Equity = Assets - Liabilities



Develop a cash flow analysis. This measures money which goes in and out of your business. This is then broken down into operational activities, investment activities, and financing activities. This analysis will help you determine when you break even, and can start reinvesting/expanding your business. Once more, the best way to do this is to create a spread sheet. Find all of your financial statements and gather them together before you start to analyze.

Operational = net income, loses of business, sales, and business expenditures.

Investment = purchases and sales of property, assets, securities, and equipment.

Financing = cash flows of all your loan borrowing and repayment.







Borrowing Money for Your Business.



Use equity financing to start your business. Equity financing usually comes from a primary investor, or other business. They will provide you a sum of money, in exchange for part-ownership of your company. This is a good option because investors look further down the road than a loan company, and you will have more money on hand. However, the investors will naturally want to interfere, and change aspects of your business model.

There are networks online which can set you up with a primary investor.

You can also check out private equity firms, which contain a vast array of specialized and experienced investors.

Remember, that small business owners generally use very little equity financing. It all depends on your business model, and the potential for growth.



Start your business using debt financing. Debt financing is when you take out a loan, usually from a bank or lending institution. This is a great option because the bank will have no say in how you run your business. The loan is tax deductible, and you can get short-term or long-term loans. However, you must have the loan repaid in a certain amount of time, and if you don't, you could have a hard time getting capital investment.

Talk to your local bank, or lending institution about the qualifications for specific loans. You will probably have to fill out some paperwork to determine whether or not you are qualified.

When using a local bank, you may be able to set up a personal relationship. This way, you can postpone a few payments if you fall on hard times.



Find out about credit scores and ratings. The higher your score is, the less risky you are to investors. In many cases, the initial business loan will be based on the borrower's own personal credit score. However, in some cases where a business is already operational, a business plan and other documents can provide for a different kind of credit specifically for the continued operations of that enterprise.

Use the online company TransUnion or EquiFax to determine your credit score. It is important to get an independent analysis, otherwise your own calculated score could be biased.

The main focus of the score is how long you have maintained a credit line, and how many monthly payments you have made on time.

If you have no prior experience taking out credit, it may be hard to get a loan. It is best to start using a credit card on small things like gas, or grocery store trips. Then gradually build up. Show the creditors you are a responsible client.[12]



Maintain an adequate debt to equity ratio. You want to make sure that the total debt and liabilities of your business is no more than four times the equity in the business. Equity simply means any retained earnings and cash injections by investors. In order to start out with equity, the owner of the business usually has to put in anywhere from 20-40%. This will maintain an adequate debt to equity ratio, and allow you to get a loan.



Put up collateral to start your business. Before you get a loan, the lending institution or bank will ask for collateral. This means you risk some of the items you own. In the case you cannot repay the loan, the bank can seize your property. Collateral usually includes homes, cars, furniture, equipment, stocks, bonds, etc. this is a scary proposition, so you need to be sure that your business will be financially successful beforehand.



Shop around for different lenders. There are a variety of lenders who may or may not be willing to issue new business loans, and all of these potential lenders have their own terms and conditions. Talk to various lenders and ask them about what kinds of loans are available. Evaluate loans by timeline. Lenders will offer various short-term, long-term or revolving-credit loans to business owners. Look at which ones suit the needs of a startup the best.

Look at secured and unsecured business loans. Secured loans actually use existing assets as collateral. For example, the person trying to start a business can use his or her home, or other property, as collateral and get lower interest rates for the loan. However, this leaves the assets vulnerable to seizure in cases of nonpayment. Unsecured loans rest solely on the borrower's credit score. See which of these types of loans best matches desired risk.

Select the best deals. You want a loan that has the lowest interest rates and most favorable terms for repayment.









Financing Your Business.



Get a bank loan. Small, local banks have received more strict standards after the financial crash of 2008. However, large investment banks such as JP Morgan Chase and Bank of America have received a set of moneys from the Federal Reserve to lend out to small businesses. This is your best option to go with, although it takes the long to pay off. Local banks will set you up with a contract, and a monthly payment. The other benefit is that you can get this loan postponed if you are having trouble paying it off.



Place your home up as collateral. Banks will generally allow you to borrow up to 75-80% of your home's worth, as long as you have at least 10-15% already down on your home. This is great because the loan will have a much lower interest rate than a credit card. Talk with your financier, or local mortgage company for more detailed information.



Use your credit card. This is a very dangerous game to be played. You need to stay on top of your monthly payments. If you fall behind, you get trapped in a death spiral. However, when carefully managed, credit cards can be great to get out of an emergency. Only use a credit card occasionally, when you are experiencing a hole you know that you can get out of.



Tap into your 401(k) plan. You will need a financial expert who can start up a C Corporation which you can then roll your retirement assets into. This is also a risky business, because you are tapping into your nest egg. This should only be done if you have more money put away in a savings account, or if you are independently wealthy.



Try loaning money from your friends and family. Ask who would be willing to make a contribution, or purchase a percentage of the company. Go about asking members of your church for donations. Let local businesses to partner with you. You might make some acquaintances, and make some deals (you make cheese, they make wine, a chance to exchange).



Pledge your future earnings. Some companies, or peoples, are willing to gamble and put money upfront, if you are willing to commit a certain percentage of future profits. This is a gamble because they, and you, are betting that you will be able to earn enough in the future. There is usually a contract involved, guaranteeing that they will at least get some money back, so keep that in mind.



Kickstart your business. Crowd funding, in the age of the internet, has become a very popular way to finance businesses. Write a description of your business idea online, at sites like Kickstarter, and convince people to donate to your business. You will want to be really descriptive, and excited in your word choice. The downside of this is that it could take months or years before you raise enough money.



Secure an SBA loan. SBA (Small Business Administration) is a branch of the Federal Government that supplies loans to businesses struggling to get off the ground. However, there are a number of qualifications. You had to have been denied a loan from another bank before. You have to meet the government's definition of a small business. You will also have to meet other restrictions, depending on the type of SBA loan. Go to the SBA's website, and fill out a form if you think you might meet these qualifications.



Attract an angel investor. These are wealthy individuals who like to bet on the financial success of start-up businesses. Angel investors are usually found at private-equity, and venture capital firms. You will want to bring someone older, who looks like he has had experience in business before. Be passionate about your idea when you present, and know all of the financial details before you walk in the room. Keep in contact with the investor days and weeks after your initial meeting.





Tips.

Talk to numerous lending institutions before you pick a loan. Some will have better interest rates, while others will have better repayments.

Consult with family members first. Getting a small loan from them can avoid dealing with greedy credit lenders.

Get some experience in the business before you start your own. If you want to start a restaurant, make sure you have worked in a restaurant before. If not, you will wind up purchasing outside help which will cost you astronomical amounts of money.



Warnings.

Talk to a lawyer and a financial advisor to avoid colossal mistakes. The biggest regret of many first-time small business owners is not consulting with a professional before they begin the process.

If you are a person living paycheck-to-paycheck, it is best to wait to start a small business. If the business goes down hill quickly, you could lose your assets, and your life savings.

Take a year to save up money and make a detailed plan. You do not want to go into small business owning head first.


November 12, 2019