Here’s the last installment in Carol’s three-part series on the Bank of America Small Business Community. In “Small Business Guide to Raising Capital, Part 3: How well do you understand debt?” Carol uncovers some myths about debt and different kinds of loans. Carol begins:
Mistake #9: Not Being Scrappy
Scrappiness is one of the hallmarks of being an entrepreneur. It is the ability to take lemons and make lemonade, get the max for the minimum and generally beg and barter to make things happen. It’s about trying to find a way to make things happen in alternate ways. Think of it as being the MacGyver of entrepreneurship. How can you extend payment terms with vendors or get paid upfront for your goods and services? Both of those efforts will decrease the amount of capital you require.
Perhaps you can trade your products or services for legal, accounting or other help? Can you get your website done for less money by using a company located in a less expensive area of the country? Can you outsource any of your tasks to a virtual assistant, maybe even one overseas?
While you certainly can’t cut out all of the expenses of your business, if you can be scrappy in the early stages of your company, you may be able to achieve critical milestones with less capital, making it easier to do a formal capital raise down the line.
How to avoid this mistake:
Mistake #10: Not Understanding Debt
Someone along the way must have sent out a memo that was grossly misunderstood because there are lots of misconceptions about debt (loans) for businesses. From the government giving away money for free (it doesn’t), to the government making loans through the SBA (it doesn’t – it provides “insurance” to lending institutions in the SBA program to lessen the institutions’ risk when making small business loans), there are lots of myths and misunderstandings on the subject.
Lenders take the business of making small business loans pretty seriously. Getting a loan requires one or more of: (I) a good personal credit history, (ii) personal assets/collateral, (iii) business history and/or (iv) business assets/collateral. If your new business doesn’t have major assets, most lenders will want you to personally guarantee the loan with your personal assets, like your house, which adds to your personal financial risk. “
You can read the rest of the post here.