In the Studio: Business Loans 101

Applying for and getting approved for a business loan can be challenging. The more you’re prepared and the lower your overhead is, the better. Your largest expense is mostly likely the location of your studio business. If this is in the same property as your home, then you probably aren’t paying separate studio rent or mortgage and you’re already eliminating a major expense, thus ultimately borrowing less money that needs to be paid back.

Alternatives to business loans or credit cards include asking for help from family or friends for investment and crowdfunding. If these options don’t work, then consider approaching lending institutions. Note: never use your personal credit card to fund your business. If you aren’t able to make your payments on time, the bank will come after you rather than your business because the credit card is in your name.

Before approaching a bank, first answer few questions: Why do I need additional capital? How much investment money do I need? How quickly do I need the funds? How does my credit report look?

Business Plans

The next step to getting ready to apply for a business loan is to write a strong business plan that outlines your financial projections (forecast of future revenue and expenses), practical considerations, and financing requests. Many business plan templates are available for free online. Choose one that works best for you. Put a lot of thought and effort into preparing your business plan. Just because it’s a small studio business, doesn’t mean you can draft a casual business plan. Investors and banks always feel more confident lending money to a venture with a strong, well-written business plan. An investor is going to review your business’ short-term and long-term goals, and how you plan to achieve those goals. A good business plan helps in attracting investors, and helps to keep the business on track to achieve start-up goals.

Loans

Securing a loan requires doing more due diligence. Before applying for a loan, research which type of loan best fits your studio business. Banks and credit unions can write the following loan types:

  • Term loans—short- or long-term
  • Second mortgages or equity loans—real estate used to secure a loan; usually long-term
  • Inventory loans and equipment loans
  • Personal loans, which you in turn lend to the business
  • Guaranteed loans, which a third party guarantees
  • Commercial loans—a standard loan for small businesses

Grants

When a startup or individual receives a grant, they aren’t required to pay the money back. Grants are competitive and in high demand. Important points to consider when looking at grants include general eligibility guidelines, the reputation of the funding source, requirements for spending the money (if any), and, if the grant is approved, the timing of the funding.

You can also join The Grantsmanship Center (www.tgci.com), which has training programs available to help you learn to write proposals, find and work with funders, locate opportunities, prepare models, and more. Common grant funding sources include:

SBA Micro-Loan Program

The US Small Business Administration (SBA) (www.sba.gov) is an extremely significant micro-loan program. Established in 1953, they assist Americans in starting, building, and growing businesses through an extensive network of partnerships with public and private organizations. The SBA doesn’t provide loans directly, rather, they use intermediaries to fund the loans. These intermediaries also provide management assistance and may require training as a necessity for lending. The advantage of these programs is that their training and assistance often increases your chances toward success.

Business Line of Credit

A business line of credit provides the adaptability that a regular business loan doesn’t. With a business line of credit, you can borrow up to a certain limit and then pay interest only on the portion of the money that you have used. A business line of credit works similarly to personal credit cards. Some of the best small business-line-of-credit providers include:

  • BlueVine (www.bluevine.com)—offers credit lines up to $250,000 with low qualification requirements.
  • Kabbage (www.kabbage.com)—offers credit lines up to $250,000 and the stability of a monthly repayment schedule.
  • Fundbox (www.fundbox.com)—offers a credit line up to $100,000 without running a credit check.
  • OnDeck (www.ondeck.com)—offers credit up to $100,000, designed to provide quick financing with the best rates and lowest payments.
  • StreetShares (https://streetshares.com)–offers up to $100,000, for up to a 3-year term loan and provides 3 different types of financing options.

Accion Micro-Financing

Accion (www.accion.org) is one of the biggest micro-finance and small business lending networks in the US, with offices in every state. They are similar to an SBA micro loan, in that they provide startup financing. To qualify for general financing, you need to be in business for at least six months and prove you have sufficient cash flow to repay the debt, among other requirements. Accion is a great source for funding small companies, especially those with strong roots within their local communities.

Angel Investors

For a studio business, the best type of investor to cultivate may be an angel investor. These are private individuals or small groups of executives who invest in businesses through an equity purchase.

Angel investor groups are formed by individual donors and organizations such as Funding Post (www.fundingpost.com), Angel Investor (www.angelinvestmentnetwork.us), and many more that arrange for special angel and venture-capitalist showcases in various parts of the country. At events organized by these groups, entrepreneurs have a chance to meet with numerous angel investors and venture capitalists and pitch (or demonstrate) their enthusiasm and business plan.

Angel investors provide expertise and guidance to help start and grow a business. Getting an angel investment can be very difficult because the investor will want proof of growth potential and a viable business plan with a reasonable exit strategy. Most angel investments have a time horizon of 3–5 years.

To approach angel investors, identify a core group who might have some interest in your particular business and target them. Targeting them means working to find a path toward getting a high-quality referral so that they meet with you.

A few weeks to a month before you meet with the investors, send out an introduction either to the referrers, if you have them, or to the investors themselves. Keep the email short, while covering who you are, how you found them, and why you’re reaching out.

Keep the meeting and response window as brief as possible.  You want investors to sense your business’ current momentum, and that they need to act quickly or they may miss an opportunity. Be clear that you have other meetings with additional potential investors, and you need a quick yes or no at the investors’ soonest convenience.

Angel investors expect you to be well prepared before approaching them. They have absolutely no interest in giving away money to individuals or companies that aren’t going to provide a return on investment (ROI). It’s an entrepreneur’s responsibility to bring as much information and potential ideas to the table as possible. Investors ask the tough questions to find out what risks are involved. It’s not a bad idea to identify those risks ahead of time.

Be prepared to provide evidence that you’re building something that people want. Investors are looking for discipline and focus, and that you’re running things quickly and optimizing effectively and economically.

Bootstrapping

Bootstrapping means having a day job while cutting back on expenses across the board and working without the help of investors or any outside money to fund your start-up. Is it hard to do? Yes. Is it impossible? No. If you’re determined to see it through, then bootstrapping shows entrepreneurs what they’re capable of when it comes to their business.

Offering a service like teaching pottery or selling products that you’ve made, you can create a small side business that you get to control and generate income flow.

When self-funding your start-up business, don’t hesitate to ask for advances, negotiate discounts with suppliers, and barter to cover some expenses to save on costs. Such small steps will ensure the survival of your business in the long run. And one more important thing—don’t quit your day job.

Starting small and working with manageable business goals is an effective way to turn your ideas into a successful business. Taking one step at a time is the way to go about reaching your target goals.

Assessing Needs and ROI

As a business owner, you need to take a good look at creating a buzz that can be generated cheaply to connect with the maximum number of customers, like participating in craft or pottery shows.

Ask yourself: Do I need brand new equipment, or can I get by with existing or pre-owned equipment? Do I need to launch a direct-mail campaign, or can I get started with marketing activities that require less of an investment, such as Facebook or Instagram? Start by making a list of all of your potential start-up costs, then make a second list with less costly alternatives. You may be surprised how many expenses you can cut, or at least postpone, until your sales take off.

There you have it; these are several straightforward financing options for small business. I hope it helps in setting up your own studio business!

Mamta Gholap received her MBA in finance and is passionate about handbuilding with clay.

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