Pitching to banks and investors to get funding for a new business is always daunting, but it’s particularly scary if you’ve already had a failed business and declared bankruptcy in the past. You can be sure that investors will do their homework and they’ll know all about it, so there’s no point trying to hide it. A lot of people assume that having a failed business in the past means that nobody will touch you but that isn’t the case. In fact, a lot of the most successful business people in the world have had failed business and declared bankruptcy before they landed on an idea that took off. Investors understand this and they are willing to take a chance on people, even if things haven’t worked out in the past. However, it is more difficult to convince them that their money is in good hands.
There are a number of concerns that investors may have and you need to address them. Firstly, they will worry about why the first business failed and whether it was down to poor management. Secondly, they will want to know about outstanding debts. If your new business is very similar to the old one, creditors may be entitled to collect debts from it, which is a big problem for investors. If your new business looks quite similar to the old one, you also need to help them understand how things will be different this time and how you will avoid another failure. Addressing all of these issues can be tough, but it’s not impossible. Here’s how to secure investment for a new business after declaring bankruptcy.
Focus On Your Business Plan
Your business plan is more important than ever if you have already had failed business ventures in the past. Any lenders will want to know exactly how you plan to spend the money that they give you and what specific steps you will take to grow the business and return their investment to them. Banks will want a clear plan for exactly how you are going to repay any loans that they give you, so it’s vital that you can prove you have thought about every tiny detail of your new business. You can find some great templates for business plans online, which will help make sure you haven’t missed out anything important and keep everything well organized. When writing your business plan, you must be specific about the numbers because this is what lenders will be really interested in, considering your previous business failures. Although you are pitching the product, it’s vital that you demonstrate a clear understanding of the finances if you want to inspire confidence in investors.
Approach Private Investors First
Although some banks will still lend to you, private investors are more likely to take a chance on your new business, so you should focus on them first. They have more control over their money than a loan approval officer has over the bank’s money, so they can make that judgment call and decide to back your business even if it doesn’t seem like a good idea on paper. You will also find that if you can secure partial investment from a private party, this drastically increases your chances of being approved for a bank loan because you are not asking for as much.
Search For A Business Partner
Having a failed business and declaring bankruptcy in the past presents two major problems; the first is that you have a terrible credit rating, which means that banks and private investors are naturally cautious about lending to you and many people will reject you immediately when they run a credit check on you. The second problem is that people will assume that you lack business skills. You tried to start a business on your own and ended up bankrupt, so the evidence would suggest that you are not capable. There are, of course, other factors involved and you should explain these to potential investors, but it’s still likely that they will have concerns about your skills as a business person.
You can address both of these issues if you search for a business partner. If you are able to find a partner with good credit, you improve your situation immediately and with them listed as co-owner of the business, your chances of getting a loan shoot up. If your business partner has a good track record and a lot of experience, that works in your favor too. The investors are a lot more confident because it’s not just you that’s running the business, you have an experienced, successful partner to help you manage the workload, meaning you’re more likely to make it work.
However, you should be very careful when choosing a business partner to work with. Find somebody that is equally as passionate about the product but, most importantly, somebody that is on the same page in terms of the future direction of the business. When you start having fundamental disagreements about where your business is headed, you’re in big trouble. You need to think about what your relative strengths and weaknesses are too so you can choose a partner that compliments your skill set. If you’re a marketing whiz but you struggle to get to grips with the accounts, there’s no sense partnering with somebody that has spent their entire career working in marketing. Instead, you need a partner that knows the financial side of business inside out.
Put More Of Your Own Money In
This one might be tricky if you are already in a tough financial position but it really helps if you can invest more of your own money. If you are willing to back the business yourself, it shows that you are confident about it and that plays well with investors. If you’re not willing to risk that much of your own money, why should they risk theirs?
If you are struggling to raise any of your own money to put in, you should consider holding off for a while. It’s not a good idea to start a business when you are in a precarious financial position because, if it doesn’t work out, you’re in serious trouble. It might be best to spend a few years restoring your credit rating and building a healthy savings account. This will reduce the risk on your part and make it easier to secure financing.
Look For Alternative Financing Options
Banks and private investors are the most common ways to finance your business, but there are alternatives you should consider if you are struggling.
Crowdfunding, for example, is a very popular way of funding a new company these days and many successful businesses have started out this way. If you didn’t already know, crowdfunding works by asking lots of people to put a small amount into a business idea, usually with the promise of a finished product or access to exclusive content once the business is up and running. This allows you to pitch your business without any financial risk and people are more likely to back you because you’re only asking for a small amount. However, crowdfunding sites have become very popular and they’re incredibly competitive. If you stand any chance of getting the required amount, you must invest time and money in creating a high quality pitch with video demonstrations of your products. If you are going to try crowdfunding, manage your expectations and remember that your product could get lost amongst the thousands of others on crowdfunding sites.
Peer to peer lending is another alternative funding source that you might want to consider. These platforms connect investors with people that are in need of loans, and many of those investors are more willing to overlook poor credit ratings. Again, you are not guaranteed to get a loan this way but many struggling business owners find that it is a good place to find potential investors.
Depending on where you live, you might also be entitled to a small business grant or loan through a scheme of some kind. These grants are created by local authorities to encourage new businesses to open in the area. If you can get a grant, you won’t need to pay it back, which is a huge bonus for a new business that doesn’t have much money. Even if you do have to pay your loan back, the interest rate will be very reasonable and some may not charge any interest at all.
A lot of people give up after their business venture fails and they are forced to declare bankruptcy. They assume that nobody will ever finance them again and it’s too much of a risk to open a new business. But if you have a great business idea, you should take a chance on it because there are still ways to secure financing. As long as you learn from the mistakes that you made the first time around, you stand a good chance of making your new business work. Just follow these tips and you can get the financing you need.