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In the very begining stages of creating a buisness, food truck. I have been trying to research ways to obtain funding for our start up. With poor credit and no money saved this is so hard. Any suggestions? Thank you!

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I'm answering you in the general forum, as your need for startup capital is identical to 99% of all entrepreneurs. I was once in the same situation when I purchased my first practice, but my father was willing to cosign a loan for me. So, in general terms, here are the traditional ways of raising startup money. Also please understand that you will need a good cushion during the first 2 years of business to tide you over any rough spots. Almost all new businesses that fail do so in the first 2 years, and the lack of operating funds is the primary reason. So in addition to any capital requirements you may have for a lease, equipment, employees, utilities, advertising, cost of goods, etc. you must also set aside a minimum amount of money to help you over the rough spots, and for unforeseen expenses. A good rule of thumb is setting aside 6 months of projected expenses (business and personal). Remember, you may not make any money the day you open your doors, or you may be mobbed with a line around the corner, but a year later a competitor opens across the street, or your equipment breaks down and you are out of action for a few weeks, or a customer defaults on his/her credit obligations to you and you just lost a lot of money. Or a customer switches to a different vendor, goes bankrupt, the stock market crashes, we have a major recession, etc. etc. All of the above has happened and will continue to happen. Be prepared for the rough patches. HOW TO OBTAIN STARTUP FINANCING (in order of importance and usefulness): 1. Family and Friends. This is always the best solution if your family and friends have some money, you have a good relationship with them, and they trust you and believe in your work ethic. Most people are receiving less than 2% on savings and CDs. If they can help a friend or family member and receive 5-6% interest on their loan, many will happily do it. You are paying them 3 times what the bank pays them, but they are entitled to a higher interest rate because the bank guarantees they won't lose their principal, while you cannot do that. You may have to pay a slightly higher rate, or you may be able to negotiate a slightly lower rate, but 5-6% on an unsecured personal loan is average and reasonable for people with good credit. If you do not have good credit and your family/friends know that you are in a difficult situation you may get a loan or you may not. It depends upon your personal relationship. These are known as relationship loans, because they are giving you the money based on a personal relationship, not on your business experience or history. Be aware that this cuts 2 ways. If you cannot pay the loan back, you may lose some friends and strain the relationship with your family. I recommend approaching them with your business plan and pro formas, so they see that you have put a lot of thought into your business. Always have a promissory note in writing. Depending on the amount you need you may be better of splitting up your request between 4-5 family members and friends, so that none of them is being asked for a very large sum of money. Try not go over 5 because if things do not work out you don't want to be sued by 20 friends. 5 will be enough, and hopefully your family won't sue you. As with everything in life this approach has its pros and cons, but it's the best first move. 2. SBA loan: You may qualify for a Small Business Administration loan. You would get the loan through a bank, but the federal government is guaranteeing that loan on your behalf. This is an excellent source of funding, as interest rates are low, however you will be filling out a lot of forms and have to jump through some hoops, but hey, this is the government, and they have their rules. BE AWARE that you will be signing and guaranteeing this loan personally, rather than having your business guarantee it. And since it's federally guaranteed (like a student loan) you will have to pay it back no matter what happens. If the worst happens and you must declare bankruptcy, this loan will be discharged (forgiven) in bankruptcy, but if you pledged any collateral, like your home, car, or anything else of value, they are entitled to take that. 3. Angel Investors (AI): There are plenty of wealthy people out there willing to either loan or invest in your company. There are investors who specialize in different businesses, like restaurants, construction, medical facilities, etc. Unless you are starting a very unique business, chances are that there are AIs who know your business. However, if you are just starting out and have no track record of founding, running and making money, you will be asked to give up control of your company to the investor funding you. In this case you are not borrowing money, you are taking on a partner, and if it's a startup and you have no record of making money in your own business you will most likely be the minority owner. Often these investors have a lot of experience in your area, so you can get guidance and help from someone who has done this before. Depending upon the person, you may be able to structure the deal so that at some point you have the right to buy him out. Every AI I know will want to see you putting up some of the money as well. They want you to have "skin in the game" so you don't just decide to call it quits one day. The amount is negotiable, but be prepared for a 25% investment of your own money. They may also ask for some guarantees, like a mortgage on your home, but if at all possible do not give any. Lenders and investors will ask for all sorts of outlandish collateral or other guarantees on the theory that they have nothing to lose by asking, and if you agree then you just handed them a Lotto ticket. These are INVESTORS, not LENDERS, and as such, they should be limited to shares in your business and no more. But you will get asked. Just say no. 4. Venture Capital Firms (VCs): Are everywhere, in every business, as long as it throws off positive cash flow every year. In general they will not be interested in a single small business. But if you have a plan to open 20 locations, or sell 100 widgets in year 1, but 1,000 by year 3 they may be interested. These are large firms with a lot of cash and they are looking to get their shareholders the highest return. Just like with an AI, the further along you are in your business, the less of your stock you would have to give up. But again, unless you have a history of successful businesses behind you, they will ask for 90% of your company in return for their investment, but everything is negotiable IF you can get their attention. In addition, they will want to exit the business in 5-7 years, which means either you buy them out, or you get sold to the highest bidder. The pros are that these are large firms with a lot of resources, and if they do take a position in your business, they are highly motivated to help you grow it well and become very profitable. Typically they will appoint the Board of Directors and you'll get seats based on how much of your company you own, and how valuable they believe you are to growing your company. Many (almost all) tech startups are funded by VCs, and while they take a lot of your company, they bring a lot to the table. They have legal, marketing, finance, and every other department you can think of, so while you may end up with only 10% of your pizza, it may be a gigantic pizza by the time they are through. If your plans are for fast growth they are a good resource. 5. Crowdfunding: If you think you will be the next Amazon this may be the ticket. I have never used crowdfunding so I cannot comment on its pros and cons. What I do know is that having 3 partners, each with their own ideas is tough enough. Personally, I would not want hundreds or thousands of shareholders in my restaurant/club/gym/hair salon etc. 6. Hard money loans: Typically used as bridge loans by builders, hotel developers and other businesses needing short term loans to cover them until they get permanent financing. These are usually private individuals, firms or private funds that you must be an accredited investor to get into (as a lender). This is absolutely the last place to go, because the terms are short (3 months to 2 years on average), the rates are high at 9-18% depending on your credit score, and they will definitely want collateral equal to at least 65% of the loan amount (that usually means a mortgage on your house. If you already have a mortgage, and the hard money lender cannot be in first place, they will ask for more collateral, higher interest rates and big fees at closing. This is your last stop before using credit cards. Only use this if you are certain you can replace this loan with a much better one within 2 years. 7. Credit cards: If you have $100,000 worth of credit and don't mind paying 14-29.9% you don't need my advice. Credit cards are best used to cover short term debt or equipment and supply purchase, and only if they have a great rewards program, and you can pay it back every month. If not, interest at those rates will mean increasing payments every month and a feeling that you are in a hole you can't get out of, which is just what the credit card companies want. Don't let credit cards use you. Use them instead, for a 30 day interest-free loan, 5% cash back or any other rewards. I took my family around the world 4 times first class by paying all our supply bills, lab fees, utilities and anything else I could think of. Just do not use credit cards to fund your business.

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