When the pandemic hit, we were all left with a bitter taste in our mouths — especially as business owners. Uncertainty was a constant, sales and customer interest were wildly volatile and for many businesses, it became less about planning for the rest of the year and more about surviving the next few months. 

My company, Circle 5 Books, which focuses on web and marketing copy, did not take much of an active stance on the pandemic. We have and still work remotely, and thankfully, writing is always in style.

That being said, I cannot imagine the pressures indulged upon other small businesses. Those that were immediately and repeatedly impacted, such as hospitality and physical retail, are now facing closures. 

Does that mean we, as small business owners, are done for? Or, are there actually more opportunities for growth if we just take the time to look? 

Funding during a crisis

During a lengthy crisis, it can be easy for potential and current business owners to ditch any thoughts of seeking out funding. Banks are tightening credit qualifications, friends and family have their own concerns, and crisis funds, like the PPP, are limited in their scope. 

But what about angel investment? Are those investors, who have a personal stake in funding small businesses, still doing so during an economic downturn? Well, that really does depend on what your business is and the industry it serves.

If you are opening a pet grooming business, do not seek angel investment. Try to find a secure bank loan. But if you are seeking an industry that solves a COVID-related problem, you are more likely to attract Angels to your pitch. 

Investors are looking for solutions to COVID-related problems

So, saying the market is down is merely a great excuse for not trying. It is not so idyllic. If you think you cannot open your small business’s doors because there is no funding, you are wrong.

Right now, Angels are looking for savvy investments, mostly as dire solutions to the world’s current needs. 

In fact, right now there are three crucial areas of business that are capable of withstanding that first elevator pitch: healthcare, technology, and education. These are sectors of small business that are in high demand. 

If you have an idea for something that solves the current crisis, you are looking at much larger Seed rounds and a much more extenuated investment. Seed rounds have grown substantially, and angels are actually investing twice as much in Seed rounds since the pandemic hit. The standard Seed round was once around $75,000 to $150,000 startup. It is now up to $300,000.

This is because Angels make their money by investing in startups. When there is a lack of such, their stomachs rumble! They need small businesses to make a buck, and they potentially lost hundreds to thousands of companies due to recent closures. They need to find viable opportunities to invest in.

The pool of small businesses to invest in is smaller

The hardest investment decision an Angel investor has to make is finding the company. With over one-half of small businesses closing their doors this year or last year, there is now far less competition for startups to gain an investor’s attention. And, we are seeing higher investment amounts for longer periods of time. 

Again, investors are looking for smart solutions that tackle these problems, and that have the potential to remain viable even after the pandemic ends. That is because they know that by putting in $300,000 in Seed funding for a small business specializing in fixing the issue, they can expect a larger ROR (rate of return) over an extended period of time. 

Risks are more acceptable

There’s a good chance that investors are more likely to take risks right now. This is again because fewer and fewer people are seeking funding from them. This leaves them with fewer investment opportunities unless you provide them. 

That doesn’t mean that their standards or expectations have changed. An Angel right now will be looking for a startup that seeks to fix the problem at hand with a great outlook for future applications later on in time. If you want to succeed right now, jump into the game with an idea that will assist or renovate the current crisis while also seeking growth in later stages as time goes on.

Is now the best time to start a business?

Many of today’s most known companies were founded during an economic downturn. As an example, General Motors was founded in 1907 during The Great Depression. This may be due to the need for inexpensive transportation options at a time where most people’s wallets were exceedingly tight.

When a recession hits, that means there needs to be an entrepreneurial “umph” that allows us to solve the problem. Just like any great business plan, you must have a problem and a viable, valuable, and cost-effective solution to it. In this case, General Motors provided faster processing of information and transportation of vital resources across the country. 

The Great Depression was an opportunity, not a death sentence. That is how we need to be thinking right now because that’s how Angel investors are thinking of it.

Now, here is the part to pay attention to — the cost of starting a small business right now can be virtually penniless. Because everything has gone virtual, overhead costs on furniture, office space, and equipment are at an all-time low. That means that what would cost us $300,000 in investment two years ago is now nil. Why not start now?

Get started 

So, if you have an idea for a business, now is the time to jump into the game. Even if not in tech, healthcare or education, take into consideration the changing landscape for Angel investors. 

In fact, look at it from their viewpoint. They just lost almost half of their investments that went to small businesses now closing their doors. so obviously the amount they can invest in is ten times higher when there is ten times less business. In turn, seek an investment with the state-of-mind of longevity. 

Imagine tomorrow’s future problems, and how this pandemic might be a golden opportunity for success. Start your business now, get to know your industry, and research the history. Then, go and write that business plan and find an Angel investment group. Gust.com is the capital of Angel investors. You need to get on there and start pitching now before this opportunity proceeds our grasp. 

Well, what are you waiting for? Get to it and start your business now!

Most healthy businesses need business financing at some point. Startups have to deal with starting costs and ongoing businesses have to finance growth and working capital.

Deciding to take on some kind of debt is quite common, but financing options depend on what kind of business you have. Its age, position, performance, market opportunities, team, and so forth are very important. So you should tailor your funding search and your approach. Let’s walk through how to conduct a funding search and define some common options.

Common small business financing myths

Before we get into the most viable options for start-ups and established businesses, let’s dispel some popular funding myths, just so we can get them out of the way. Don’t get discouraged at this point. Better to deal with realities that you can work with rather than myths you can’t.

Venture capital is a growing opportunity for funding businesses

Actually, venture capital financing is very rare. I’ll explain this more later, but assume that only a very few high-growth companies with high-power management teams are venture opportunities. Many people use the phrase “venture capital” when they really mean “outside investors” or “angel investors.”

Bank loans are the most likely option for funding a new business

Actually, banks don’t finance business startups. Banks aren’t supposed to invest depositors’ money in new businesses, due to the potential risk involved. We’ll talk more about that in a bit, but more often than not you need some sort of monetary traction to acquire a bank loan.

Business plans sell investors

Business plans won’t automatically convince investors that they should fund your business.

Yes, a well-written and convincing business plan (and pitch) present your business to investors in detail; but they are investing in your business, not just a plan. Normally you have to have a team in place, have made progress toward idea validation, or—better still—traction (paying customers). So you’ll need to do a lot of work before you get investors.

Nobody invests in ideas or plans. There are rare exceptions, in which investors know an entrepreneur well and are ready to invest in them at an early stage. In that case, they are investing in the entrepreneur, not the plan.  

How to prepare your business for funding

Let’s start with a quick reality check. Like so many things in business, a lot about business financing depends on your specific details. Realities go case by case, depending on the growth stage, resources, and other factors.  

Are you a startup or an ongoing business?

The outlook for funding depends a great deal on the specifics of the business.

For example, many ongoing businesses have access to standard business loans from a traditional bank that would not be available to startups. Also, high-tech high-growth startups have access to investment funding that would not be available to stable, established businesses that show only slow growth.

Develop or refine your business plan

I’m not saying you shouldn’t have a business plan. You should.

Your business plan is an essential piece of the funding puzzle, explaining exactly how much money you need, and where it’s going to go, and how long it will take you to earn it back.

Investors will look first to a summary, and then a pitch; but if you get through that screening, they’ll want to see a business plan for the process of due diligence. And even before that, during the early stages, they’ll expect you to have a business plan in the background, for your own use.

Most commercial banks require a business plan as part of a loan application. A plan is also required for applying for a business loan guaranteed by the Small Business Administration (SBA).

Everyone you talk to is going to expect you to have a business plan available. They may not start their discussions with you by looking at the plan, but don’t get caught without one when they ask to see it.

How to find funding for your business

The process of looking for money must match the needs of the company. Where you look for money, and how you look for money, depends on your company and the kind of money you need. There is an enormous difference, for example, between a high-growth internet-related company looking for second-round venture funding and a local retail store looking to finance a second location.

In the following sections of this article, we’ll explore six different types of investment and lending options. This should help you determine which funding options are viable for your business and which investment options you should pursue first.

1. Venture capital

The business of venture capital is frequently misunderstood. Many startup companies complain about venture capital companies failing to invest in new or risky ventures.

People talk about venture capitalists as sharks, because of their supposedly predatory business practices, or sheep, because they supposedly think like a flock, all wanting the same kinds of deals.

This is not the case. The people we call venture capitalists are business people who are charged with investing other people’s money. They have a professional responsibility to reduce risk as much as possible. They should not take more risk than is absolutely necessary to produce the risk/return ratios that the sources of their capital ask of them.

Who should pitch to venture capitalists?

Venture capital shouldn’t be thought of as a source of funding for any but a very few exceptional startup businesses. They can’t afford to invest in startups unless there is a rare combination of product opportunity, market opportunity, and proven management.

Venture capital professionals look for businesses that they believe could produce a huge increase in business value within just a few years. They know that most of these high-risk ventures fail, so the winners have to win big enough to pay for all the losers.

Typically, they focus on newer products and markets that can reasonably project increasing sales by huge multiples over a short period of time. They try to work only with proven management teams who have dealt with successful startups in the past.

If you are a potential venture capital investment, you probably know it already. You have management team members who have been through that already. You can convince yourself and a room full of intelligent people that your company can grow ten times over in three years.

If you have to ask whether your new company is a possible venture capital opportunity, it probably isn’t. People in new growth industries, multimedia communications, biotechnology, or the far reaches of high-technology products, generally know about venture capital and venture capital opportunities.

2. Angel investment

Angel investment is much more common than venture capital and usually is far more available to startups, and at earlier growth stages too.

Although angel investment is a lot like venture capital (and is often confused with it), there are important distinctions. First, angel investors are groups or individuals who invest their own money. Second, angel investors tend to invest in companies at earlier stages of growth, while venture capital typically waits until after a few years of growth, after startups have more history.

Businesses that land venture capital typically do so as they grow and mature after having started with angel investment first. Like venture capitalists, angel investors normally focus on high-growth companies at early stages of development. Don’t think of them for funding for established, stable, low-growth businesses.

You should also be aware that angel investment was affected by the 2012 JOBS Act that loosened some restrictions and allowed what we now call crowdfunding. Traditionally, angel investment was limited by U.S. securities and exchange regulations to individuals meeting some minimum wealth requirements, called “accredited investors” in the legal wording. Crowdfunding is the accepted term for individual investment in startups by people who don’t meet the legal wealth requirements.

Under certain conditions, startups and even non-high-growth small businesses can solicit investment from a wider range of investors. Details are still fuzzy on a lot of this, so, when in doubt, check with a good attorney first. 

How to find angel investors

Your next question, of course, is how to find the “angels” that might want to invest in your business. Some government agencies, business development centers, business incubators, and similar organizations will be tied into the investment communities in your area. Turn first to your local Small Business Development Center (SBDC), which is most likely associated with your local community college.

You can also post your business plan on websites that bring angel investors together. The two most reputable sites in this area are:

• Gust Angel Network
• AngelList

Be careful dealing with anyone or business firm offering to find you startup investment if you hire them to act as front or negotiator for you, or do your business plan, or your pitch presentations and such. These are shark-infested waters.

I am aware of some legitimate providers of business plan consulting, but legitimate providers are harder to find than the sharks. Real angel investors want to deal with the startup team founders, not brokers, or finders, or consultants. Finders’ fees had a place in startup investment a few decades ago, but have become obsolete.

3. Commercial lenders

Banks are even less likely than venture capitalists to invest in, or loan money to, startup businesses. They are, however, the most likely source of financing for established small businesses.

Startup entrepreneurs and small business owners are too quick to criticize banks and financial institutions for failing to finance new businesses. Banks are not supposed to invest in businesses and are strictly limited in this respect by federal banking laws.

The government prevents banks from investing in businesses because society, in general, doesn’t want banks taking savings from depositors and investing in risky business ventures; obviously when (and if) those business ventures fail, bank depositors’ money is at risk. Would you want your bank to invest in new businesses (other than your own, of course)?

Furthermore, banks should not loan money to startup companies either, for many of the same reasons. Federal regulators want banks to keep money safe, in very conservative loans backed by solid collateral. Startup businesses are not safe enough for bank regulators and they don’t have enough collateral.

Why then do I say that banks are the most likely source of small business financing? Because small business owners borrow from banks. A business that has been around for a few years generates enough stability and assets to serve as collateral. Banks commonly make loans to small businesses backed by the company’s inventory or accounts receivable. Normally there are formulas that determine how much can be loaned, depending on how much is in inventory and in accounts receivable.

A great deal of small business financing is accomplished through bank loans based on the business owner’s personal collateral, such as homeownership. Some would say that home equity is the greatest source of small business financing.

4. The Small Business Administration (SBA)

The SBA guarantees loans to small businesses and even to startup businesses. The SBA doesn’t make loans directly; it guarantees loans so commercial banks can safely make them. They are normally applied for and administered by local banks. You normally deal with a local bank throughout the process of getting an SBA loan.

For startup loans, the SBA will normally require that at least one-third of the required capital be supplied by the new business owner. Furthermore, the rest of the amount must be guaranteed by a reasonable business or personal assets.

The SBA works with “certified lenders,” which are banks. It takes a certified lender as little as one week to get approval from the SBA. If your own bank isn’t a certified lender, you should ask your banker to recommend a local bank that is.

5. Alternative lenders

Aside from standard bank loans, an established small business can also turn to accounts receivable specialists to borrow against its accounts receivables.

The most common accounts receivable financing is used to support cash flow when working capital is hung up in accounts receivable.

For example, if your business sells to distributors that take 60 days to pay, and the outstanding invoices waiting for payment (but not late) come to $100,000, your company can probably borrow more than $50,000.

Interest rates and fees may be relatively high, but this is still often a good source of small business financing. In most cases, the lender doesn’t take the risk of payment—if your customer doesn’t pay you, you have to pay the money back anyhow. These lenders will often review your debtors, and choose to finance some or all of the invoices outstanding.

Another related business practice is called factoring. So-called factors actually purchase obligations, so if a customer owes you $100,000 you can sell the related paperwork to the factor for some percentage of the total amount. In this case, the factor takes the risk of payment, so discounts are obviously quite steep. Ask your banker for additional information about factoring.

6. Friends and family funding

If I could make only one point with budding entrepreneurs, it would be that you should know what money you need and understand that it is at risk. Know how much you are betting, and don’t bet money you can’t afford to lose.

I’ll always remember a talk I had with a man who had spent 15 years trying to make his sailboat manufacturing business work, achieving not much more than aging and more debt. “If I can tell you only one thing,” he said, “it is that you should never take money from friends and family. If you do, then you can never get out. Businesses sometimes fail, and you need to be able to close it down and walk away. I wasn’t able to do that.”

The story points out why the U.S. government securities laws discourage getting business investments from people who aren’t wealthy, sophisticated investors. They don’t fully understand how much risk there is. If your parents, siblings, good friends, cousins, and in-laws will invest in your business, they have paid you an enormous compliment. Please, in that case, make sure that you understand how easily this money can be lost, and that you make them understand as well.

Although you don’t want to rule out starting your company with investments from friends and family, don’t ignore some of the disadvantages. Go into this relationship with your eyes wide open.

Maybe, your idea and your situation are a better fit for crowdfunding—that is, creating a profile and pitching your business idea or product on a site like Kickstarter. In fact, this method of raising money has become so popular that there are dozens of crowdfunding sites to choose from, all offering different terms and benefits.

Things to consider before taking on business financing

Sadly, financing and investment involve money; and money breeds some predatory business practices, scams, and such. So here are some reminders to help you avoid the pitfalls.

Be cautious about who you get funding from

Don’t take private placement, angels, friends, and family as good sources of investment capital just because they are described here or taken seriously in some other source of information. Some investors are a good source of capital, and some aren’t. These less established sources of investment should be handled with extreme caution.

Get it in writing

Never, spend somebody else’s money without first doing the legal work properly. Have the papers done by professionals, and make sure they’re signed. 

Don’t spend before you receive funding

Never, spend money that has been promised but not delivered. Often companies get investment commitments and contract for expenses, and then the investment falls through.

Don’t jump to friends and family when you’re in a tough spot

Be aware that turning to friends and family for investment is not always a good idea. The worst possible time to not have the support of friends and family is when your business is in trouble. You risk losing friends, family, and your business at the same time.

Financing is complicated

Most businesses are financed by home equity or savings as they start—bootstrapping. Only a few high-growth startups can attract outside investment. Venture capital deals are extremely rare. Borrowing will always depend on collateral and guarantees, not on business plans or ideas. And business borrowing is normal for ongoing businesses with an established history, but not a normal option for startups.

What might be the next steps to take depends a lot on your specific business. Generally, high-tech startups might explore angel investment or friends and family first, while steady ongoing businesses should start by asking their small business banker. But always remember, your business is unique.

Editor’s note: This article was originally published in 2018 and updated for 2021.

If you’re raising money for your business, having an impressive pitch deck is a key component in your fundraising toolkit. A great pitch deck gets potential investors excited about your idea and engages them in a conversation about your business, hopefully leading to an investment.

In this article, I’m going to give you the formula for what you should include in your own pitch deck. 

I’m leveraging the knowledge I’ve gained from listening to hundreds—if not thousands—of elevator speeches and pitch presentations. I’ve seen all different kinds of pitch decks and presentation styles and found that there’s a simple formula that just works.

I’ve also built my own and presented to major Silicon Valley VC firms over the years and have learned a lot about what works and what doesn’t.

What is a pitch deck?

A pitch deck, also known as a slide deck or start-up deck, is a presentation that provides a brief but informative overview of your business. It should cover the key points of your business plan, the products and services you provide, high-level financial projections, and funding needs. Your pitch deck should work well on its own as a visual document, but it will primarily be used as a tool to tell the story of your business.

What is the purpose of a pitch deck?

This may sound counterintuitive, but the goal of your pitch deck is not to raise money. What? I know that doesn’t sound right, but the real goal of your pitch deck is to get to the next meeting.

Remember, your pitch deck and pitch presentation are probably some of the first things that an investor will see to learn more about your company. And because investments rarely are made after just one meeting, your goal is to spark interest in your company. You want investors to ask for more after they hear your pitch and not just show you to the door.

So, while a solid pitch deck is critical to raising money, the key goal of the deck is to get to the next step—another meeting and a request for more information.

What to include in your pitch deck

While every business is different, I’ve found that the following format works for most businesses and is most likely to generate interest from potential investors.To get started, download our free pitch deck template, and read on for insight into the importance of the following 11 slides as you develop your own deck.

1. Vision and value proposition

This is a quick one-sentence overview of your business and the value that you provide to your customers. Keep it short and simple. A great way to think about this slide is to imagine it as a short tweet—describe your business in 140 characters or less in a way your parents would understand.

It’s common for tech companies to make their value proposition a comparison to another well-known company. For example, you see many pitches that start with things like:

“We’re the Uber for Pets”

“We’re the Netflix for Video Games”

This can work, but be careful to make sure your comparison makes sense and you’re not just using a high profile company like Uber to signify growth potential. Your business model has to truly be similar to the company you are referencing.

2. The problem

If you aren’t solving some problem in the world, you are going to have a long uphill climb with your business.

Use this slide to talk about the problem you are solving and who has the problem. You can talk about the current solutions in the market, but don’t spend too much time on the competitive landscape on this slide—you’ll have a chance to do that later on.

Ideally, try and tell a relatable story when you are defining the problem. The more you can make the problem as real as possible, the more your investors will understand your business and your goals.

3. Target market and opportunity

Use this slide to expand on who your ideal customer is and how many of them there are. What is the total market size and how do you position your company in the market? If you can find the data, investors will want to know how much people or businesses currently spend in the market to get a sense of the total market size. This is where you tell the story about the scope and scale of the problem you are solving.

If it makes sense for your business, you’ll want to divide your market into segments that you will address with different types of marketing and perhaps different types of product offerings.

Be careful with this slide, though. It’s tempting to try and define your market to be as large as possible. Instead, investors will want to see that you have a very specific and reachable market. The more specific you are, the more realistic your pitch will be.

4. The solution

Finally, you get to dive into describing your product or service. Describe how customers use your product and how it addresses the problems that you outlined on slide two.

You’ll be tempted to move this slide closer to the beginning of your pitch deck, but try and resist the temptation. This is classic storytelling where you build up the problem and describe how bad it is for lots of people. Now your product or service is coming to the rescue to help solve that problem.

Most entrepreneurs are very focused on their product when instead they need to be focused on their customers and the problems those customers face. Try and keep your pitch deck focused with this format and you’ll tell a better story.

If possible, use pictures and stories when you describe your solution. Showing is nearly always better than telling.

5. Revenue model or business model

Now that you’ve described your product or service, you need to talk about how it makes money. What do you charge and who pays the bills? For some businesses (content sites, for example), advertisers pay the bills instead of users, so it’s important to flesh out the details here.

You can also reference the competitive landscape here and discuss how your pricing fits into the larger market. Are you a premium, high-price offering, or a budget offering that undercuts existing solutions on the market?

6. Traction and validation/roadmap

If you already have sales or early adopters using your product, talk about that here. Investors want to see that you have proven some aspect of your business model as that reduces risk, so any proof you have that validates that your solution works to solve the problem you have identified is extremely powerful.

You can also use this slide to talk about your milestones. What major goals have you achieved so far and what are the major next steps you plan on taking? A product or company roadmap that outlines key milestones is helpful here.

7. Marketing and sales strategy

How are you planning on getting customers’ attention and what will your sales process look like? Use this slide to outline your marketing and sales plan. You’ll want to detail the key tactics that you intend to use to get your product in front of prospective customers.

Finding and winning customers can sometimes be the biggest challenge for a startup, so it’s important to show that you have a solid grasp of how you will reach your target market and what sales channels you plan on using.

If your marketing and sales process is different than your competitors, it’s important to highlight that here.

8. Team

Why are you and your team the right people to build and grow this company? What experience do you have that others don’t? Highlight the key team members, their successes at other companies, and the key expertise that they bring to the table.

Even if you don’t have a complete team yet, identify the key positions that you still need to fill and why those positions are critical to company growth.

9. Financials

Investors will expect to see your financials: sales forecast, income statement (also called profit and loss statement), and cash flow forecast for at least three years.

But, for your pitch deck, you shouldn’t have in-depth spreadsheets that will be difficult to read and consume in a presentation format. Limit yourself to charts that show sales, total customers, total expenses, and profits.

You should be prepared to discuss the underlying assumptions that you’ve made to arrive at your sales goals and what your key expense drivers are.

Remember to try and be realistic. Investors see “hockey stick” projections all the time and will mentally be cutting your projections in half. If you can explain your growth based on traction you already have or compared to a similar company in a related industry, that is extremely useful.

10. Competition

Every business has competition in one form or another. Even if you are opening up an entirely new market, your potential customers are using alternative solutions to solve their problems today.

Describe how you fit into the competitive landscape and how you’re different than the competitors and alternatives that are on the market today. What key advantages do you have over the competition or is there some “secret sauce” that you have and others don’t?

The key here is explaining how you are different than the other players in the market and why customers will choose you.

11. Investment and use of funds

Finally, it’s time to actually ask for the money. That’s why you’re doing this pitch deck, right? I know—I said that this pitch deck isn’t about actually getting funded. That’s still true, but your potential investors do need to know how much money you are looking for.

More importantly, you need to be able to explain why you need the amount of money you are asking for and how you plan on using the money. Investors will want to know how their money is being used and how it is going to help you achieve the goals you are setting out for your business.

If you already have some investors on board, now is when you should be talking about those other investors and why they chose to invest.

Other slides you might include in your pitch deck

While you do want to keep your pitch deck short, sometimes you may need or want to include a few extra slides that help explain your business. You likely won’t utilize them when you present, but it can be a great resource for investors to review after the fact.

Here are a few additional slides that are often found in investor presentations.

Exit strategy

If you are raising money from investors, you’ll need to show them how you plan on giving them a return. You do this in the form of an “exit strategy” slide that outlines who your potential acquirers might be if you manage to grow your company and be successful. Having an IPO and going public is a viable option for some high-growth startups, while other businesses are more likely to be bought by larger players in your market.

Partnerships

Some businesses have key strategic partnerships that are critical to their success. This can often be in the form of intellectual property licensing from a university or a key distribution partner who will be taking your product to market. If your success relies on these types of partnerships, it’s important to showcase them.

Demo and screenshots

If you have a prototype of your product, screenshots of your online service, or any other “show and tell” opportunities, it’s great to include a placeholder slide in your deck where you will actually show your potential investors how your product works and what it does.

Other documentation

Keeping your pitch deck as short and succinct as possible is critical. Remember, your goal isn’t to provide investors with all the information they need to make an investment decision. Its primary purpose is to tell a story, build excitement, and help get that all-important request for additional information and a follow-up meeting.

In addition to your pitch deck, you should have more detailed, additional information that you can provide if requested. Preparing these additional documents can also help ensure that you don’t try and fill your presentation with too much overwhelming information.

Tips to make your pitch successful

Here are a few tips to make your presentation as successful as possible:

Keep your pitch simple 

All entrepreneurs spend countless hours “in the weeds” thinking about every last detail about their business. But, for an investor pitch, less information is better than too much. You want your slides to be simple, convey high-level ideas, and leave room for questions. Simple and straightforward presentations always do better than detailed presentations full of bullets.

Skip the bullets 

Speaking of bullets, skip them. Slides full of bullet points are boring and don’t help tell a story. Try and use large fonts and limit the number of words on each slide. Use images wherever possible to help tell your story and build an emotional attachment to your ideas.

Tell a story 

Don’t just talk about the facts. Instead, focus on grabbing interest and getting your audience excited. Your deck doesn’t need to be the complete guide to your business. It just needs to generate interest so you can move on to the next step. 

One of the best ways to do that is to tell stories about how your customers use your product, how they currently experience problems that need to be solved, and how your company will make the lives of your customers better. The more you can tell stories that investors can relate to, the more you’ll be able to build excitement for your company.

Keep your presentation short

Make sure you have plenty of time for questions, demos, and discussion about your business idea. If you have a one-hour meeting, aim for your presentation to take 20 to 30 minutes.

Don’t overstate the market opportunity

Instead of top-down forecasts where you “only need to get one percent of a huge market” to be successful, focus on bottom-up forecasts where you detail your expectations for how you’re going to acquire customers. 

If you already have data on how an early version of your product is selling, use those numbers to help drive the rest of your forecast.

Ask for the money 

Yes, it’s a slide in the presentation deck above, but entrepreneurs sometimes forget to ask for the money. When you ask, it’s very important to be able to intelligently discuss how the money will be used. Your detailed financial forecasts should also take an influx of cash into account.

Keep your deck current 

Fundraising takes time. You’ll likely pitch your company many, many times before you get an investment. As legend has it, Pandora pitched more than 300 VC firms before getting investment. 

Assuming you’re working to build your company while you pitch to raise money, make sure that you keep your deck up-to-date with your latest progress, roadmaps, and so on. There’s nothing worse than presenting an out-of-date deck to potential investors.

Send your deck as a PDF 

You’ll almost always be asked to either send your slides ahead of time to investors or to leave a copy behind. If this happens, don’t send Powerpoint or Keynote files. Instead, send a PDF. This means that anyone who looks at the deck will see it as you intended with your chosen fonts and styles.

Make sure your deck stands alone without your presentation 

Your pitch deck will always be better when you present it, but it should ideally be able to tell some of your story without you being there to tell it. Investors might want to flip through the deck again after you’re done with your presentation and it needs to have enough content that the deck can stand alone and communicate some of your core ideas.

Documents to have prepared after you pitch to investors

Developing your pitch deck is only the start of your business planning journey. You’ll want to follow-up on a successful investor pitch with the necessary planning documentation to support your presentation. The following are just a few documents that you should have prepared to send after you pitch.

Executive summary

An executive summary sometimes called a summary memo, is a two-to-three-page overview of your business. It’s a document that investors can share with their partners and others in their firm to provide an overview of your business. Your executive summary should cover what’s in your pitch deck but in written form.

Technical documentation 

If you are starting a tech company or medical company, you may be asked to provide some additional detail on your technology. Investors in these types of companies will often want to vet your technical claims with an expert, so providing more detailed documentation, diagrams, workflows, and so on might be important.

Detailed financial models 

Any investor that’s seriously interested in your business will want to see detailed financial forecasts for at least the next three years so they can get an understanding of the underlying assumptions that are driving your forecasts. 

Investors will want to see your plans for hiring and employee-related expenses, R&D expenses, manufacturing costs, marketing expenses, and so on. Be prepared to provide a detailed sales forecast, profit and loss forecast, and cash flow forecast. A balance sheet is also often required. Whenever possible, visually represent your data with graphics. It’s proven to be more effective.

Detailed market research 

You may be asked to provide more details on your target market and the market research you’ve done to date. This isn’t always the case, but if you have the information it’s a good idea to be ready to present it in some format. Again, this data shouldn’t be part of your initial pitch deck, but instead should be ready if it’s asked for.

Start developing your pitch deck

Ready to get started? Download our free pitch deck presentation templates and start working on your pitch in either PowerPoint or Keynote.

You can also find plenty of additional advice in our Elevator Pitch Guide. You’ll learn how to deliver an impactful elevator speech and find all the resources you need to perfect your pitch.

Hear more pitching tips with Peter and Jonathan on the tenth episode of The Bcast, Bplans official podcast:

Click here to subscribe to The Bcast on iTunes »

What will it cost to start your business? It’s hard to know for sure, but it’s important that you start planning early on to avoid any unforeseen expenses. 

Launching a successful business requires preparation. And while you may not know exactly what those expenses will be, you can and should begin researching and estimating what it will cost to start your business.

What are startup costs?

Startup costs are expenses incurred before the business is running. These are the bills and expenses you will need to cover leading up to the launch of your business. While every business will need to account for specific startup costs, your business will generally fall under either a brick-and-mortar, online, or service-based organization. 

Why calculate startup costs?

Like your business plan, estimating your startup costs is part of building a roadmap for your business. Having even a rough estimate can help you avoid unnecessary risks and stay on track during more volatile months. 

Still not convinced that you should explore your startup costs? Here are a few more reasons why you should calculate your startup expenses.

Every business is different

Every single industry and business requires vastly different expenses, which means there’s no simple formula for calculating startup costs. But that doesn’t mean you can’t make an educated guess that accurately reflects the needs of your business.  

A SaaS business, for example, may need to account for additional online tools or server expenses to keep its site up and running. But an apparel store, brick-and-mortar, or online, will need to account for physical inventory and shipping expenses.

Establish a firm foundation

Many people underestimate startup costs and start their business in a haphazard, unplanned way. This may work in the short term but is typically much more difficult to maintain. Managing startup costs is almost impossible until you calculate them accurately and customers are often wary of brand new businesses with makeshift logistics.

Build your financial plan

Your financial plan is an overview of your current business financials and estimates for growth. Having realistic startup costs, even if they’re just estimates, is one of the key elements of building a viable financial plan. Understanding what it will take to start your business can help you:

• Estimate profits
• Conduct a breakeven analysis
• Extend the runway of your business
• Identify potential tax deductions

To successfully leverage your financial plan, you’ll need to revisit it consistently throughout the life of your business. Having these early startup estimates will provide you with a baseline that you can reference during these reviews. After a few months of operating, you’ll know if your estimates are realistic or if you need to make any adjustments.

Secure loans and attract investors

Investors and lenders want to understand the roadmap you have in place for your business. You’ll need to be ready to answer questions about your business model, sources of revenue, growth forecasts, and initial startup costs. They need to see that your business is viable and that you’ve thoroughly explored what it will take to start, operate and grow.

Having realistic startup costs laid out is a necessity in this case. And being able to show how you believe expenses will change or remain similar over time will give them a better idea of how you intend to manage your business. 

How to identify your startup expenses

Like when developing your business plan, or forecasting your initial sales, it’s a mixture of market research, testing, and informed guessing. It’s up to you to adjust accordingly based on actual results over time. 

If you need a starting point, look at your competitors and industry benchmarks for specific expense categories. You don’t want to directly copy the expenses you find, but confirm if your estimates make sense based on current market factors. You may find that you have a competitive cost advantage based on a healthy vendor relationship or a common expense you’re able to avoid based on your business model.

Now that may still leave you wondering, how do I actually estimate realistic startup costs for my business? Start by making these three simple lists. 

1. Startup expenses

These are expenses or upfront costs that happen before you launch and start bringing in any revenue. These should be split into one-time and ongoing expenses. By separating them in this way you can give yourself a more accurate estimate of what it will take to launch your business. Here are some common expenses to consider in both categories:

One-time expenses

• Permits and licenses
• Incorporation fees
• Logo design
• Website design
• Brochure and business card printing
• Signage
• Down payment on rental property
• Improvements to the chosen location

Ongoing expenses

• Rent
• Payroll
• Taxes
• Legal services
• Loan payments
• Insurance payments
• Utilities
• Marketing costs

These makeup just a handful of the potential costs you’ll need to consider. Some will remain fixed, others will operate as variable costs and some may shift between the two over time. By having them outlined this way from the start, you’ll be able to keep better track of your expenses and identify any natural cost-cutting options over time. 

2. Startup assets

These are costs associated with long-term assets purchased in order to start your business. While cash in the bank is the most basic startup asset (and we’ll talk more about that later) there are some other common assets you may need to invest in:

• Starting inventory
• Computers or other tech equipment
• Office equipment
• Office furniture
• Vehicles

Why separate assets and expenses?

Now there’s a reason that you should separate costs into assets and expenses. Expenses are deductible against income, so they reduce taxable income. Assets, on the other hand, are not deductible against income.

By initially separating the two, you potentially save yourself money on taxes. Additionally, by accurately accounting for expenses, you can avoid overstating your assets on the balance sheet. While typically having more assets is a better look, having assets that are useless or unfounded only bloats your books and potentially makes them inaccurate. 

Listing these out separately is good practice when starting a business and leads into the final piece to consider when determining startup costs. 

3. Cash required to get started

Cash requirements are an estimate of how much money your startup company needs to have in its checking account when it starts. In general, your cash balance on the starting date is the money you raised as investments or loans minus the cash you spend on expenses and assets.

This is the last piece of the puzzle you’ll need to get started. As you build your plan, watch your cash flow projections. If your cash balance drops below zero then you need to increase your financing or reduce expenses. 

How much cash do you need?

Many entrepreneurs decide they want to raise more cash than they need so they’ll have money left over for contingencies. While that makes good sense when you can do it, it is difficult to explain that to investors. Outside investors don’t want to give you more money than you need, because it’s their money.

You may see experts who recommend having anywhere from six months to a year’s worth of expenses covered, with your starting cash. That’s nice in concept and would be great for peace of mind, but it’s rarely practical. And it interferes with your estimates and dilutes their value.

For a better estimate of what you really need in your starting cash balance, you calculate the deficit spending you’ll likely incur during the early months of the business. From there, estimate how much cash you’ll need moving forward until you hit a steady break-even point several months and even years after opening.

How to estimate how much your expenses will cost

Now that you have your potential assets, expenses, and starting cash it’s time to put them all together to estimate your full startup costs. There are two potential methods you can use to develop these estimates.

The more traditional, which I call the worksheet method, involves creating separate worksheets for starting costs and starting financing.

The more innovative, which we use in our LivePlan software, simplifies this with rolling estimates for expenses, assets purchase, and financing to manage cash flow as a continuous process. Each option is valid so let’s dive into how to perform each method.

The traditional method — Startup worksheet

The traditional method uses a startup worksheet, as shown in the illustration here below, to plan your initial financing. The example here is for a retail bicycle shop. It includes lists of startup expenses in the upper left, startup assets in the lower left, and startup funding on the right.

The total startup costs in this example are $124,650, the sum of expenses ($3,150), and assets ($121,500) required before lunch.  The funding plan, on the right, shows that the owner plans to invest $25,000 of her own money and $99,650 in loans. The loans include a $70,000 long-term loan and other loans including a commercial credit of $17,650, a $2,000 note, and other current debt (probably credit card debt) of $10,000.  

Notice the balance here. One side shows the startup costs and the other shows where the money will come from.

Notice also that the assets include $35,000 in cash and bank account. That estimate, in this example, comes from the example shown above, which calculates the need for $25,708 in initial cash. The entrepreneur estimates $35,000 instead, to have a buffer.

Remember, the worksheet is covering what happens before launch. It doesn’t include ongoing sales, costs, expenses, assets, and financing after launch.

This worksheet example shows an estimated $3,150 in expenses incurred before startup. That is your initial loss when starting, meaning that these expenses can be deducted against income later, for tax purposes. This loss may look bad on the surface, but it’s quite normal for fledgling businesses. In fact, it’s financially beneficial, as having expenses to deduct from future taxes reduces your tax bills. 

The LivePlan method — Consolidated estimates

LivePlan suggests a different and probably more intuitive way to estimate startup costs. The key difference between LivePlan and traditional methods is the estimates start when a business starts spending rather than when it launches and starts getting revenues. There is no division between the launch date and pre-launch spending. So there is no specific startup table.

For example, in the Soup There It Is sample business plan, the revenue starts in April—but the spending starts in January. As you can see in the illustration here below, this startup estimates $11,500 in startup expenses, including $4,000 each in January and March plus $3,500 in March.

And, in the balance sheet, you can see that the startup projects needing $30,000 in initial cash investment, of which $21,375 is left at the end of the startup period. Founders have spent $11,500 on startup expenses. Of that, they owe $2,875 in accounts payable. So remaining cash is the result of starting with $30,000 and spending $8,625 so far.

And the remaining $2,875 in accounts payable takes the sum of expenses up to $11,500. Notice also that these deductible expenses create a loss at the startup of $11,500. (For a look at how these same numbers would show up in the traditional method, read on to the following section.)  

And how do you estimate, with the LivePlan method? Start with revenues, costs, and expenses (including payroll). Add in assets. And then solve the resulting cash flow problem by adding financing including loans and investments.

For example, here is how the Soup There It Is balance sheet looked before the founders added investment, loans, and inventory:

Do you see the problem there? A business plan isn’t done until the projected cash balance is above zero at all times. Otherwise, checks are bouncing, the bank is up in arms, and the business in trouble.

So the founders, as they develop their plan, first project money coming in and out, and from that, they can estimate how much financing, including investment, they need to make that work.

Reconciling the two methods

What’s the difference between the two methods? Let’s look at how the traditional startup worksheet would look using the information from the Soup There It Is plan. 

The plan would start in April, not January. And what the LivePlan method shows as happening in January through March is consolidated into the startup worksheet. You can see these numbers in the projected balance sheet for the LivePlan method, above.

If you prefer the traditional startup worksheet method but are working with LivePlan, then you would set your starting date as April, not January; and you would set owner investment (in financing) as $30,000. 

You would use the starting balances option in LivePlan to set starting balances as $21,275 of cash, -$11,500 in retained earnings (the loss at startup), and $2,875 in starting accounts payable.

Things to consider when estimating startup costs

Pre-launch versus normal operations

With our definition of starting costs, the launch date is the defining point. Rent and payroll expenses before launch are considered startup expenses. The same expenses after launch are considered operating or ongoing expenses. And many companies also incur some payroll expenses before launch — because they need to hire people to train before launch, develop their website, stock shelves, and so forth.

The same defining point affects assets as well. For example, amounts in inventory purchased before launch and available at launch are included in starting assets. Inventory purchased after launch will affect cash flow, and the balance sheet; but isn’t considered part of the starting costs.

So, be sure to accurately define the cutoff for startup costs and ongoing expenses. Again, by outlining everything within specific categories, this transition should be simple and easy to keep track of.

Your launch month will likely be the start of your business’s fiscal year

The establishment of a standard fiscal year plays a role in your analysis. U.S. tax code allows most businesses to manage taxes based on a fiscal year, which can be any series of 12 months, not necessarily January through December.

It can be convenient to establish the fiscal year as starting the same month that the business launches. In this case, the startup costs and startup funding match the fiscal year—and they happen in the time before the launch and beginning of the first operational fiscal year. The pre-launch transactions are reported as a separate tax year, even if they occur in just a few months, or even one month. So the last month of the pre-launch period is also the last month of the fiscal year.

Consider startup financing as part of your startup costs

Of course, startup financing isn’t technically part of the starting costs estimate. But in the real world, to get started, you need to estimate the starting costs and determine what startup financing will be necessary to cover them. The type of financing you pursue may alter your startup or ongoing costs in a given period, so it’s important to consider this upfront.

Here are common financing options to consider:

• Investment: What you or someone else puts into the company. It ends up as paid-in capital in the balance sheet. This is the classic concept of business investment, taking ownership in a company, risking money in the hope of gaining money later.
• Accounts payable: Debts that are outstanding or need to be paid after a certain time according to your balance sheet. Generally, this means credit-card debt. This number becomes the starting balance of your balance sheet.
• Current borrowing: Standard debt, borrowing from banks, Small Business Administration, or other current borrowing.
• Other current liabilities: Additional liabilities that don’t have interest charges. This is where you put loans from founders, family members, or friends. We aren’t recommending interest-free loans for financing, by the way, but when they happen, this is where they go.
• Long-term liabilities: Long-term debt or long-term loans.

Aim for long-term success with realistic startup costs

Whether you use the LivePlan method or the traditional method for estimating your startup costs, make sure you’ve considered every aspect of your business and included related costs. You’ll have a better chance at securing loans, attracting investors, estimating profits, and understanding the cash runway of your business.

The more accurately you layout startup costs and make adjustments as you incur them, the more accurate vision you’ll have for the immediate future of your business. 

Editor’s note: This article was originally published in 2018 and updated for 2021.

Pitching is a potentially challenging process and can be especially intimidating if you are a relative rookie. Of course, if you want to grab the attention of investors, it is also entirely necessary.

One of the best ways to improve your chances of securing funding is by setting out the culture of your organization as part of the pitch.

So what is company culture and what is the best way to express yourself clearly, concisely, and compellingly to investors, without making your intentions too transparent?

A quick introduction to corporate culture

The culture of your company is both an inward-facing aspect of the organization that covers the environment in which employees operate on a daily basis, as well as the outward-facing presentation of the business and brand as a whole.

The culture should encompass everything from the values which the business represents and the attitudes that it expresses through its work, to the targets it sets and the processes it puts in place with the aim of achieving them.

Because the culture of a startup may be fairly nebulous during the early stages of development, it is necessary to actively attempt to define it sooner rather than later. Only by having a formalized definition of these central tenets that best represent your business will you be in a position to share these with third parties, including investors.

Once you have prioritized and completed this, you will be ready for the next step; actually gearing up for pitching.

Laying the groundwork

First and foremost, it is important to appreciate the need to plan thoroughly before any pitch meeting. If you go in blind or are only partially prepared, this will be very apparent to experienced investors, and could seriously limit the likelihood of securing their involvement.

From the perspective of conveying corporate culture effectively in this context, it is vital to take a bespoke approach. This will involve scrutinizing the portfolio of any prospective investor, determining the kinds of businesses that they have shown an interest in previously, and leveraging this information to your advantage.

Indeed you can harness this research to pinpoint the investors who are most closely aligned with the values of your fledgling company, while also identifying those who might be less interested in the industry you occupy and the ethos you exude. If you want to save time, money, and hassle, narrowing down your list of investors to pitch to in this way is sensible.

It is also worth noting that with the right pitch speech, personalized according to the portfolio of the investor in question, you should still be able to sell your firm successfully. It is simply the case that this tailoring of your pitch should be your weapon of choice, in combination with the right strategies during the event itself.

Communication techniques to implement

As you might expect, it is not just what you write in your pitch speech, but how you communicate the words that count most. Furthermore, your corporate culture needs to be something you embody in your presentation style since this will allow you to implicitly expand upon and add to what you are saying, augmenting the meaning further through gestures, tone of voice, and body language.

For example, if your organization is intending to be vibrant, youthful, outgoing, and socially engaged with customers and clients alike, it is worth reflecting this in your pitching style. Likewise, if you are hoping to portray your company as focused, cutting edge, and committed to a particular core product or service, you should adjust your speech accordingly, while also taking into account what you have learned about the investor from your prior studies.

It is also worth saying that while being well prepared will be to your advantage, you also need to be flexible and adaptive, responding to the situation at hand, rather than sticking rigidly to your plan if it seems like the strategies you have put in place are not having the desired effect. There is only so much you can learn about an investor via research; once you get in the room with them, you may realize that an alternative tact is needed or minor adjustments should be made to convince them that your corporate culture is one worth engaging with.

Exploring the power of neuromarketing

Although a relatively new field, neuromarketing is quickly becoming an essential tool in a number of contexts. The right techniques can even help anyone who is preparing a pitch speech and hoping to blow investors away with the way they portray their corporate culture. This is because behaviors extrapolated from consumer studies are just as applicable to pitching since this is essentially a sales situation in which your brand personality is under intense scrutiny.

One example of neuromarketing’s relevance to pitching your corporate culture is the concept of anchoring. This hangs on making your company more attractive by presenting the most appealing information upfront, before making any comparisons with established companies with a similar ethos or even outright competitors. By anchoring your business to a positive idea, this link will be indelibly etched in the mind of the investor, thus giving it the edge in the subsequent comparisons you make as well as any follow-up questions they ask. If you handle it right, this strategy could even mean that the investor does not get as far as considering the alternatives in the first place, which would be a major win.

Another part of tailoring your pitch to demonstrate and exemplify the culture of your company is to consider the aesthetic impact of your pitch materials. If you are presenting through the use of slides, handing out documents for investor perusal, or issuing digital materials to support your proposition, these not only need to contain key data points expressed in a comprehensible way, but also in a layout and format that is connected to this culture.

What investors actually care about

In amongst all of this, it is a good idea to take stock and consider what actually makes a difference to investors in terms of corporate culture, and more specifically what hard evidence you can supply to back up any claims you make.

Employee retention rate is a great example of this; as much as you might say that your company is keen to invest in team members and guarantee job satisfaction unless you are willing to prove this on paper, investors might doubt your authenticity. Conversely, if you can show them an impressive retention rate and link this to the cultural environment you have stewarded, they will know you are serious.

Likewise, if you have examples of employee feedback processes and sessions that you run to make sure that there is an open dialogue with workers that shapes your corporate culture as well as being defined by it, investors will be impressed. At the end of the day they care less about the culture itself, and more about the results it delivers and the benefits it brings outside of all the pitch meeting hyperbole and marketing fluff.

Final thoughts on pitching corporate culture

Hopefully, you now have a few ideas about how to begin building your next pitch so that it clicks with investors rather than leaving them cold. The last thing to bear in mind is that you need to write a pitching speech that does not bludgeon investors over the head with the values of your business, but rather indicates subtly what these are and shows the investor that they are already aligned with them.

In short, it is not an act of convincing someone to come over to your way of thinking, but rather one which should suggest that they are already on the same wavelength, and so should be in the best position to get involved with your enterprise.

Funders can be fickle. Each has their own set of criteria for deciding whether a startup has potential. And sometimes it’s a downright mysterious group of benchmarks. Everything from politics to personality may come into play when you’re trying to attract investors. 

Still, there are a few considerations you can expect to be a part of the calculus. Is there a well-defined, sustainable market for your product? Does it solve a known problem? Is it the first product to do so? Is it differentiated from other products in its competitive set? Do you have a strong management team in place? 

And one question that many startups overlook at the early stages of formulating their business plans: do you have a well-reasoned, effective, and budget-savvy marketing plan?

Marketing Is a distinct business function

Entrepreneurs aren’t superheroes. They may be experts in the industries they’re seeking to break into: musicians who develop music recording technology, dentists who design teeth-whitening systems, or investment advisors who want to launch an e-trading platform, for example. But particularly when you’re running lean and mean, you may not have native expertise in every aspect of managing a startup. 

Marketing is one such function. The difference between marketing and say, finance, is that, as consumers, we’re constantly exposed to marketing messages. It’s easy for us to assume we know enough about marketing to wing it, at least for a while. But while marketing may feel familiar and some aspects of it are genuinely intuitive—is that jingle catchy or does it fall flat?—it’s also a science. 

That’s even more true in the digital age. Entrepreneurs who demonstrate to venture capitalists that they have a comprehensive digital marketing plan are more likely to make funders sit up and take notice.

Why you should invest in a digital marketing plan

We know. Money is tight. But one investment you should seriously consider making, even before you embark on your quest for funding, is engaging a professional marketing firm to take a look at your business. Some firms specialize in research and can assist with pulling together some compelling numbers and detailed customer profiles. 

Others can help you with branding your company or products—one aspect of marketing that’s particularly prone to amateur missteps. You might ask a marketing firm to write and design your pitch book, which is pretty much the cost of admission to an angel’s office. And some firms focus squarely on the nuts and bolts of putting together digital marketing strategies. 

Because digital marketing is more firmly rooted in pure math and more easily automated than the more touchy-feely aspects of marketing, developing a digital marketing plan is sometimes one of the less expensive services professional firms offer. Most firms will schedule a consultation with you at no cost. Take advantage of that opportunity. At the very least, you’ll come away with a roadmap for crafting your own digital strategy if you decide to do it yourself. 

How to leverage digital marketing for your business

Applying digital marketing practices to your business may seem daunting and complicated. However, if you take the time to understand the processes, terminology and tools it can quickly become a valuable function of your business. Here are 5 tips that will work as a crash course on the world of digital marketing for your small business.

1. Get the basics under your belt

Ready to learn a new language? Some of the terms used to describe digital marketing may be unfamiliar, but they’re not difficult concepts to understand. If you’re fortunate enough to land a meeting with a VC firm, you’ll be at an advantage if you can hold your own—or even confidently lead—a conversation that touches on digital marketing tactics. 

You should also have a little background in the technology behind the tactics that make up a sound digital marketing plan. You needn’t become a hardware or software guru, but those products will be part of your marketing spend so it’s best to have them on your radar.

2. Distinguish between inbound and outbound marketing 

What is inbound marketing?

Inbound marketing is about creating a welcoming home for your customers through platforms such as your website and social media communities like Facebook, LinkedIn, and Twitter. By creating relevant, unique content for potential customers, you begin to build a relationship with them and position yourself as an authority they can trust when they want to learn something—or even be entertained. It’s more of a “pull” technique than its opposite, outbound marketing. 

What is outbound marketing?

Outbound actively pushes customers toward you using tools such as banner ads placed on other companies’ websites, email blasts, paid ads on search engines, or traditional direct mail campaigns and radio commercials. 

Which is more useful?

Most digital marketing programs include both inbound and outbound marketing tactics. But a majority of marketing experts nowadays believe that inbound marketing is more effective than outbound. Consumers are inundated by ads and tend to tune them out or try to skip them entirely. The pop-up blocker option on your computer and DVR devices are two technologies designed to help you do that. 

What’s more, inbound marketing is less expensive than outbound marketing. Some estimates suggest that the cost of generating a single lead through outbound tactics is three times the cost of using inbound marketing techniques to do so.

3. Leverage SEO to support inbound marketing 

You can set a table overflowing with the fanciest appetizers and pour the best wines, but if you don’t send out party invitations you’re going to be dining alone. The same holds true for the website and social media pages you design for your business. You have to attract customers to your sites before they can enjoy the delicious content you’re serving up. That’s where search engine optimization (SEO) comes in.

According to Google, an estimated 63% of purchases begin online. Consider your own experience. Chances are when you’re thinking about buying something, the first thing you do is a Google search. SEO is a suite of tactics businesses employ to make sure their websites rank prominently in search results. Successful SEO strategies raise your search engine ranking. Marketers, and small business owners, should aim for the holy grail: appearing among the first ten listings in a Google search.

Do-it-yourself SEO tactics 

A full-on SEO strategy encompasses many practices, some of which are invisible, technical, and are found in the coding behind your site. But you can optimize your content—the part of your site customers actually see—for search by following a few basic steps.

Start with a website outline

Experts recommend that you begin designing your site with something very familiar: an outline. Identify the topics or categories of topics you believe will be most relevant to your consumers. Your products will likely top the list, but your company history, customer reviews, and educational resources may be equally important during the early stage of building customer relationships. If you’re selling products directly online, one essential feature of your site will be a shopping cart. Each of these core items may become a page on your website that is accessible from your homepage.

Identify what your customers are searching for

From there it gets a little more complicated. For each topic you come up with, you’ll want to generate two more lists: one containing keywords (one or two-term phrases) and one containing long-tail keywords (sentences, questions, or longer variations of keywords). Both are phrases that describe what visitors will find on each of your pages. They’re also the terms customers type in when searching for a company or products like yours. 

Eventually, you will include those keywords and long-tail keywords in your website text. Both keywords and long-tail keywords should be relevant to the content you provide. In order to cover as much search territory as you can, you should make both of these lists very comprehensive. If you need inspiration, it’s always wise to look at who currently ranks for the keywords you intend to use.

Differences between regular and long-tail keywords

There are a few differences between regular keywords and long-tail keywords. Keywords tend to be short and general. Someone might type “best enchiladas” into the Google search bar when they’re craving Mexican. If you make enchiladas, that’s a keyword you should sprinkle liberally throughout your site. 

But many people search using the language they’d use when they’re speaking: they’re not very concise when it comes to search terms. They might search for “where to find the best enchiladas in the Bronx” instead. That phrase is considered a long-tail keyword. “Best enchiladas in the Bronx” and “best enchiladas near me,” and “find the best enchiladas” all qualify as long-tail keywords.

How to use regular and long-tail keywords

SEO strategists advise using a mix of regular keywords and long-tail keywords in your website text. You can bet that nearly every Mexican restaurant out there uses the keyword “best enchiladas.” The problem is that while many people will use that phrase to search, the list of restaurants the search engine returns will be endless. 

Your restaurant might not show up until the hundredth page of search results. Fewer people might search using the long-tail keyword “best enchiladas in the Bronx,” but your chances of showing up in the early pages of search results improve with terms that are used less frequently. In addition, using more specific keywords such as “green enchiladas,” “spicy enchiladas,” or “big fat enchiladas” can increase your chances of appearing higher in search results.

Which keywords should you use?

How do you know which keywords to include in your site? That’s a science unto itself. Digital marketing firms specialize in finding the most powerful keywords for their clients. But there are free tools you can access online to help you identify the keywords for your site, product category, and industry. 

4. Use links to your advantage

Links are pretty important—they’re what the entire internet is built on. They’re also an essential part of SEO. Search engines don’t like freeways with no exits. 

Outbound links

Having outbound links (links that connect to other sites) on your site improves your search standing. If you link to highly authoritative sites, Google loves you even more. So before you link to a site from your website, consider how it reflects on you. Linking to government and academic websites can be an effective SEO tactic. You can also check the domain authority of any site you’re thinking of linking to. That’s a measure of a site’s search standing. 

Perhaps outbound links make you nervous. Why let visitors out when I have them where I want them? It’s true, outbound links are a double-edged sword. But here’s another kind of link you’re going to love: the backlink. 

Backlinks

Backlinks are links you secure on other people’s websites that lead back to your site. They’re pure gravy and SEO-savvy marketers pursue them like mushroom foragers hunting for truffles. The more backlinks your site garners, the greater its domain authority will tend to be, and the better it will perform in search. Large companies have entire departments dedicated to securing backlinks, but you can start small. 

You can ask some of your vendors—or frankly, even your brother-in-law—for a backlink. Some companies will agree to link to your site if you do the same for them. Pursuing backlinks isn’t something you do once, either. It should be part of your ongoing online marketing plan.

5. Your site is live. Now what?

Search engines reward you for keeping your site updated. The more often you update your site—using long-tail keywords and keywords, of course—the better you’ll fare in search. That’s why digital marketing specialists often recommend that you include a blog page in your site design. Your products and pricing may not change from week to week, but blogging provides an opportunity to keep your site fresh by adding content your customers care about regularly. Even updating an old article on your site can earn you better results in search. Content that is evergreen, such as the popular “Top Tips” article format, also earns favor from Google.

Track your performance

Once your site is live, tracking its performance is crucial. It’s the only way you’ll learn what’s working and what’s not. You can get very granular about it, but to start out, there are a few key performance indicators you’ll want to keep an eye on. Again, there are a number of free (or almost free) website auditing tools available to help you with the process. Here are the metrics we suggest you learn more about and focus on when analyzing your site’s efficacy:

• Track unique visitors to get a sense of how well you’re driving people to your site via inbound and outbound marketing tactics.

• Check your bounce rate to learn whether visitors find your content compelling.

• Identify your top landing pages. You may be able to glean which pages of your site are outperforming others in search. Then you can make your other pages more like them.

• People enter your site and eventually they exit. Identify your top exit pages then figure out why you’re losing people at that point in their journey. Tip: it may not be the content that’s driving them away. It could be a technical malfunction as simple as an annoying broken link.

• According to Hubspot, 55% of visitors leave within 15 seconds of arriving on a website. That’s all the time it takes for them to decide whether your site offers them something of value. Your average session duration is a rough indicator of the quality of the user experience you’re offering visitors, which may depend on such factors on compelling content, an attractive design, the navigability of your site, whether the content of your site delivers on the keywords you’ve chosen, and whether your pages contain clear calls to action. Customers who don’t find what they’re searching for won’t stay on your site for long. Nor will they linger if you don’t show them a clear path to getting what they want. Time spent on-page is a related metric you may also want to track.

Essential tech tools and services for the entrepreneur

You can bet that every investor considering you for funding is going to Google your company and visit your website. So how are you going to create this fabulous website of yours? Let’s take a look at a few of the things you’ll need to build a site that reflects well upon your company and drives sales for your organization.

Web hosting

The very first tech service you’ll need to buy before you launch a website is web hosting. Web hosts create a place on the internet where your site can live. No web host, no site. It’s that simple. There are thousands of web hosts to choose from, but here’s a common-sense rule to keep in mind. The best web hosting service is the one that doesn’t fail you at a critical moment. 

You’re going to find that a preponderance of web hosting services advertise 99.9% uptime. But do they deliver? Look for a host that verifies its uptime claims through independent certification. Your business may be small now, but you’re poised for growth. Find a web hosting service that makes scaling up easy when the time comes. Finally, be sure to choose a host that takes your security—and your customers’ security—very seriously. Cybersecurity breaches are extremely costly, in part because they squander the goodwill you’ve built up with your target market.

Build your website

Once you have a place to put your site, it’s time to build it. Some web hosts also offer their customers website design services. But if you’re operating on a lean budget, you or someone in your company might want to give building your own site a try.  Do-it-yourself website building software is widely available. Most products offer a lot of design flexibility, so you needn’t worry about your site turning out like a cookie from a cutter. The best packages have built-in SEO tools so you can start building a search-friendly site from the get-go, even if you’re not an SEO maven. 

eCommerce tools

If you to plan sell your products directly from your website, you’ll need to install an online shopping cart. Online shopping carts are often sold as separate technology that’s integrated into your primary website architecture. Considering all the work you put into attracting customers to your site, inspiring them to trust you as an industry authority, and persuading them to choose your product, your site has to be ready and hospitable at the moment of truth. 

Unfortunately, researchers have determined that nearly 70% of shopping carts are abandoned before customers complete their purchases. What’s more, those people who do click the order button rarely buy all of the items they place in their carts. While your online shopping cart may not have real wheels, it’s where the virtual rubber meets the road, so research your options carefully. 

Keep sales simple

Simplicity is one hallmark of an effective shopping cart. Carts should break the process of ordering into as few, easy-to-follow steps as possible. Flexibility is another key feature of great shopping carts. If your customer wants to order a product in two colors instead of one, your cart shouldn’t send him or her back to square one of the ordering process. 

Shopping carts can be smart, too. If it appears a customer is starting to walk away from your site without ordering, some carts can be programmed to offer a purchase-motivating discount or other promotion. Finally, the best online shopping carts have long memories. Sometimes customers fill up a cart even though they’re not committed to buying. That’s a common reason why carts are abandoned. But carts can be programmed to remember returning visitors and welcome them back to your site with the products they almost purchased the last time they were there.

More resources at Bplans.com

While establishing a powerful online presence is essential for today’s startup businesses, effective marketing, and sales strategies encompass considerably more. You may want to read about other important strategic concerns like competitive analysis, customer profiling, positioning, branding, and more before meeting with potential investors or diving into building your online marketing plan.  We’re here to help. Search our extensive blog for advice and helpful tools you can use along the way to becoming a marketing force in your industry.

Many businesses, both large and small, rely on borrowed capital to fuel growth and fund other business initiatives. In other words, borrowing is just part of the equation. This means small business owners need to understand how their credit impacts their ability to borrow more than the average consumer looking to purchase a house or buy a new car. 

Every small business owner in the United States basically has two credit profiles. Their personal credit score and business credit history. In order to understand how credit impacts a business owner’s ability to access borrowed capital, you need to understand both.

Why understanding personal credit is important

For most small business owners on Main Street, your personal credit history is going to be a part of every business creditworthiness conversation you have with a lender. What’s more, one of the least appreciated or understood parts of owning and running a successful business is the importance of building and maintaining a credit profile that makes borrowing easier and provides options for financing that a poor profile doesn’t.

We witnessed this in April and May of this year as many small businesses were turned away from needed Paycheck Protection Program (PPP) funds offered by the SBA because they couldn’t meet the standard of “acceptable credit” required by the SBA and their lenders.

A strong credit profile is more important than ever now, as many small business lenders tighten their qualification requirements and some have even stepped away from small business lending for the time being. This has happened before following the financial crisis in 2008 and is a pattern that I’ve seen happen following other recessions. Meaning, the business owners that are best able to understand, improve, and leverage their credit are the most likely to access the capital they need to grow—or maybe even stay afloat during the current health and economic challenges we face right now.

How is personal credit determined

Most of the personal credit reporting agencies base their credit scores on the FICO score. Although their scores may vary slightly, the basic formula they use to calculate their scores is similar. FICO measures your score based upon these five data points:

1. Payment history (35%) 

This is the single most important metric and where you can have the most lasting impact on your credit score. If you meet your credit obligations in a timely manner, in other words, if you make your mortgage payments, auto payments, and credit card payments on time every month, it is the most powerful way to build (or strengthen) your personal score.

2. Amount owed (30%)

The amount of credit you use when compared to the amount of credit you have available is what we’re talking about here. If you can keep your credit utilization (the industry term for this percentage) down below 30% it will positively impact your credit score.

The lower you can keep this percentage the better. For example, if you have $10,000 in credit available on your personal credit cards and you regularly run a balance between $8,000 and $10,000 (even if you make timely payments every month) it will reflect negatively on your FICO score. A $3,000 or less balance (30%) is preferred and if you can keep your credit utilization around $1,000 (10%), even better.

3. Length of credit history (15%)

Lenders like to see a track record. Basically, they are trying to determine what you will do in the future based upon what you’ve done in the past. In other words, the longer your credit history the better. So, that credit card you seldom use, but you’ve had for 10 or 15 years actually helps your personal score.

You may have a newer card that has better rewards points that you use more frequently, but it might make sense to occasionally buy a tank of gas or a dinner at a restaurant to keep it active and reflected on your credit report. In other words, from the perspective of building a strong personal credit score, avoid the temptation to cut up your credit cards and close accounts—even if you don’t use them very often.

4. Credit mix (10%)

Creditors like to see a mix of credit on your report; which is reflected in your score. A mortgage, an auto loan, and a credit card are reflected more positively than say, simply an auto loan.

5. New credit inquiries (10%)

Every time you apply for new credit there will be a slight impact on your personal credit score. In the normal course of life, this ding will be very slight, but you should be aware of it. The credit bureaus also treat shopping for an auto loan or a mortgage much differently than applying for every department store credit card available to you. Typically, it’s nothing to be too concerned about, but it is important to be aware of and shouldn’t prevent you from applying for the credit you need.

Now that you know how your personal credit score is calculated, you might be asking yourself, “What is a good credit score?”

What is a good personal credit score?

Although there might be differences from agency to agency, most rank personal credit scores like this (I’ve included the potential impact to a small business loan application): 

5 tips to improve your personal credit score

Whether you’re looking at a small business loan, an auto loan, or a new mortgage, lenders are trying to determine if you have the means to service debt and whether you are likely to make all your periodic payments. These five tips are not only credit best practices, I have personally seen the positive results in my own personal credit score.

1. Know your score

It’s human nature to positively influence the things you pay the most attention to, this is particularly true for your personal credit score. Regularly monitoring your personal score is the first step. I’ve personally had a relationship with Experian for many years and have watched my personal credit score improve—primarily because I’m paying attention to it every month (a monthly review is not too frequent). The first step is to know your score and although I’ve paid a small fee every month to Experian for the service, there are a number of services like Nav, that offer credit monitoring for free.

2. Use credit wisely

You might think this is an oversimplification, but it isn’t. Avoid the temptation to access all the credit you have available simply because you can. A good rule of thumb is to keep the ratio of credit you use compared to the credit you have available to below 30%. I am very conscious of every time I use a credit card, for example, and how it will impact my ratio—and I have been rewarded for it with a higher score.

3. Don’t jump around

Transferring balances from one credit card to another won’t help your score and is considered a very transparent gimmick that could actually hurt your personal credit score.

4. Make timely payments

This probably goes without saying but this is the single most important thing you can do to improve your score. I’ve set up automatic payments to make sure I’m never late on things like my mortgage or auto payments.

5. There are no quick fixes or shortcuts to improving your score

This is one time when slow and steady really does win the race. You will be surprised at how these good credit practices can make a difference over six months or a year.

What do you need to know about business credit?

Your personal score and your business credit history work together to show a potential lender that you have a track record of meeting your personal and business financial obligations. Your business credit history is really a collection of scores, rather than one score like your personal FICO score, and can vary from business credit bureau to business credit bureau. With that in mind, here are some of the things that are included in the average business credit report: 

General information about your company

Some of the information used in your profile is available from the public record. Information like annual revenue, the industry you’re in, how long you’ve been in business, and the status of any current liens or judgments are all data that eventually wind up in your credit profile. If the information on file with the state where you do business is inaccurate or out of date, it can hurt your profile. For example, something as simple as a wrong SIC (Standard Industry Classification) code could put your business in a higher-risk category and make it harder for you to qualify for a small business loan.

Because it’s not uncommon to see mistakes in the public record, creating a relationship with the business credit bureaus is important because it enables you to make sure all the information they have about your company is accurate. Fortunately, the credit bureaus are motivated to make sure the data they have about you and your business is as correct and current as possible, so they are motivated to correct legitimate errors.

How timely do you pay your vendors and suppliers? 

Trade credit is an important source of credit to all businesses but is an invaluable way for new businesses to start building their credit profile. Dun & Bradstreet has been monitoring business credit the longest and focuses on this aspect of your credit profile, but the others also consider how timely you pay your vendors and suppliers. 

D&B provides potential creditors with several reports (like their 100 point PAYDEX^® report) that not only offer insight into how far beyond agreed-upon terms you pay your invoices, they also provide predictive insight in how likely you will remain current in the future, whether or not your business is under stress, and how healthy your business is financially. Experian and Equifax provide similar data about your business and rank past performance to predict what you will do in the future.

How timely do you meet your other credit obligations? 

If you use a business credit card, have a business line of credit, or other small business loan; the business credit bureaus use your payment history as part of your profile. Equifax for example takes the data from the Small Business Finance Exchange (SBFE), which is credit data collected by the largest small business lenders in the United States as part of their report, which details how business owners make credit card and other business loan payments. Because this data is a direct reflection of how businesses interact with large business lenders, many banks use this report to evaluate your business’ creditworthiness.

Similarly, Experian looks at the number of credit transactions, outstanding balances, payment habits, how much of your available credit you use, and the details of any current liens, judgments, or bankruptcies to evaluate your credit. Experian, like Dun & Bradstreet, provides a risk score for small businesses on a scale from 0 to 100—or High and Medium Risk to Good and Excellent Credit depending upon where your profile falls on their scale.

Don’t be afraid to use your business credit, The wise use of business credit over time helps build a strong credit profile as you establish credit accounts, pay them off, and stay current with suppliers. Making the trade credit accounts you establish early in the life of your business can be very important down the road—provided you’ve been able to maintain a good credit history with your suppliers. The same is true for other business credit accounts.

6 tips to build or improve your business credit profile

1.  Find out what your profile looks like today

Because your business credit profile doesn’t include a universal credit score, you will likely need to contact more than one of the bureaus. For example, while your Dun & Bradstreet profile includes much of the same type of information as Experian or Equifax, they might weigh the value of some parts of the data differently than the others. As a result, it makes sense to have an understanding of what the different bureaus are reporting about your business.

2. Look for errors

An error as simple as the misclassification of your industry can negatively impact your ability to borrow if that industry is considered a bigger risk than another. Additionally, if the information about your business is incomplete and you don’t update your profile with current information, the bureaus will be forced to make a “best guess” about the information that is lacking.

3. Use business credit for business purposes and personal credit for personal expenses

While it’s very tempting (and many business owners do it) to use your personal credit cards or other personal credit for business expenses, it’s not a good idea and doesn’t build your business credit profile. 35 percent of your personal credit score is based upon the amount of your available credit compared to what you currently use. The higher credit balances often required for business expenses can pull down your personal credit score—ultimately handicapping your ability to qualify for business credit with some lenders in the long term. For many young, or early-stage, businesses, using your personal credit sometimes can’t be avoided, but as soon as possible, you should separate the two.

4. Make sure your vendors report your good credit history

As mentioned above, your vendors aren’t required to report your timely payments, but you want them to. While it’s important to build good relationships with your individual creditors, if they don’t report, it won’t build a history ultimately making it more challenging to create new credit relationships with new creditors. If your current creditors don’t report to the business credit bureaus, encourage them to do so. And, when looking for new vendors, it’s important enough to ask.

5. Establish business credit accounts

One of the easiest ways for an early-stage business owner to start building a business credit profile is to reach out to current suppliers and ask about establishing a credit account. In those early years it can be difficult to get a small business loan, but those vendor accounts will help you build a strong credit profile early, making it much easier a year or two down the road.

6. Meet your business credit obligations in a timely manner

The single most powerful tip for building a strong business credit profile is to pay your bills on time. That includes your vendors, any loans you might have, your utilities, and your business taxes. Consistently paying late can take a serious toll on your profile. It doesn’t take long before the occasional late payment starts to negatively impact your ability to qualify for a loan. Conversely, your good credit behavior will over time build a stronger credit profile.

The importance of your credit profile

You can’t afford to ignore your personal credit score or your business credit profile because they work together to help answer three important questions every lender wants answered (even if they don’t ask them this way).

1. Can you repay a loan? Do you have the revenue and cash flow to make periodic loan payments?
2. Will you repay a loan? Do you have a track record of meeting your financial obligations that implies you will do so in the future?
3. Will you continue to make timely periodic payments should something unexpected happen?

If you can answer these questions successfully it will improve the odds of a successful small business loan or business credit card search. Managing your credit profile is an important part of answering these questions. A strong credit profile is no guarantee you’ll get the financing you’re looking for, but it will give you options a weaker profile will not. And, it will make it easier for a lender to say “Yes” to your application.

Here’s the good news, just because you have bad credit doesn’t mean you can’t get financing. It’s not easy, and will likely be an uphill battle, but it is possible. And thankfully more and more alternative lending options continue to emerge for entrepreneurs in this exact situation.

But like anything involving your business, the best thing you can do before applying for a loan or any sort of funding is research and plan. The more you know about how your credit impacts your chances and what options are available to you the better off you’ll be. 

Why your credit score matters

Lenders, use your credit score as a metric for measuring risk. The lower your score is, the riskier you and your business appear. 

Traditional lenders (banks and credit unions) generally look for a minimum credit score of 650, with many requiring a higher score, before approving your application. This isn’t a hard and fast rule, but it at least provides a benchmark excluding all other factors. 

For businesses that have been operating for less than a year, your personal credit score will be the only thing considered. And for better or worse, your personal credit score is typically tied to your business, even after you’ve established a business credit profile. This means both credit scores will be considered in a loan application if you’ve been in business for more than a year, with specific lenders weighing one profile more heavily than another.

How to improve your credit score for future loans

While you can still get a loan with bad credit (and we’ll cover how to do so in a moment), it never hurts to start planning for the future. If you want to get a loan with better terms or think you’ll apply for more funding in the near future, you need to display that you’re a responsible borrower. 

Luckily, acquiring and paying off a loan or alternative funding, even if it’s not the best option available, will play into improving your credit. But to really improve your chances, you may want to implement the following ideas.

1. Make payments early or on time

Lenders are interested in how reliably you pay your bills and use it as a predictor of how likely you are to make future payments. Avoid making late payments whenever possible and bring any outstanding balances up to current as soon as possible. You won’t be able to eliminate late payments from your record immediately, but the more you can showcase responsible repayment the less impact it will have on your score. 

If you’ve only recently been able to maintain regular payments, but are in good standing with your creditors and vendors, you may consider requesting their support. It can be as simple as a letter vouching for you and your business, that showcases their trust in your ability to pay. 

2. Maintain a low outstanding balance

Keeping your outstanding loan and credit balances low is a good way to avoid being labeled with bad credit. Obviously, when you take out a large loan this won’t be possible, but it is a good strategy to pay-off or minimize any other debts before you take out another. There’s no magic number to keep your balances at, but instead, a ratio that lenders will look at.

Your credit utilization ratio is the amount of credit you utilize compared to the amount available to you at a given time. You can find your utilization ratio by adding up all of your debt and dividing it by your total available credit. Typically you want to sit somewhere below 30% to improve your credit score, with the lower the usage the more benefit your score receives. 

3. Avoid opening multiple lines of credit

One of the easiest ways to improve your credit is minimizing the number of new credit lines or loans you take out within a short period of time. Applying for credit requires a hard inquiry on your credit report. This can be detrimental if it happens too often and will stay on your history for up to 2-years.

Additionally, having unnecessary lines of credit available may also lead to excessive spending which can make on-time payments difficult to maintain. So only apply for new lines of credit or loans when it is needed.

4. Separate business and personal expenses 

As mentioned before, your personal and business credit history will be looked into when applying for a business loan. But as your business becomes more established, your business credit history will carry more weight. If you have bad personal credit, it will benefit you to separate and establish a clean credit history under your company name. 

You don’t even necessarily need to start with a business loan. Instead, open a business credit card and apply regular purchases, such as office supplies and utility payments to it. After a year, as long as you keep up with your payments and maintain a low balance, you’ll be in great shape to leverage your business credit history.

5. Build your team

Lenders will typically look at the combined credit history and collateral for everyone with a financial stake in a business. If you can, look to add credible business partners to your team with a clean track record. This will not only improve your creditworthiness but potentially provides you with mentors and additional leadership to help manage your business.

How to get a business loan with bad credit

“Bad credit” refers to a FICO credit score between 300 – 629, but even if you fall within this range, that doesn’t mean you’re ineligible for a loan. As you take steps to improve your credit, you can still look into funding that may be available to you right now. Follow these steps to improve your chances of getting approved:  

1. Understand your credit position

You’ve likely already done this as you take steps to improve your score, but it’s always beneficial to know exactly where you stand. You’re allowed one free credit report per year, get yours, look into both your personal and business credit score if applicable.

If you’ve already requested your annual report, there are supplementary scores that can give you an idea of what your current standing is. Just be sure to avoid any options that require payment information or state that it will run a hard credit inquiry.

2. Provide collateral

To help mitigate risk for the lender, you can offer up collateral against your loan. Common forms of collateral include:

• Unpaid customer invoices
• Equipment financing
• Personal assets
• Cash or savings accounts
• Investment accounts

However, this does somewhat increase risk on your end, especially if your business takes a downward turn for a prolonged period of time. So only offer up collateral you’re comfortable losing if things go bad and you need to pay off debts.

3. Add a co-signer

Similar to adding on stable partners, adding a co-signer means they are willing to take on partial responsibility for the loan. Typically you want a co-signer to have good credit and the ability to cover payments if you’re unable to keep up with them.

4. Review eligibility requirements

Every type of financing has its own set of eligibility requirements you’ll need to meet. While a traditional lender will focus on long-term business history and personal credit, alternative lenders will likely require more accessible criteria to determine your creditworthiness. 

Do your research and find a lender that fits your needs. Look for options that cater to the strengths of your business to improve your chances of being approved. 

5. Apply for a lower amount of funding  

Asking for the right amount of funding, that’s supported by your business plan and current financials, will increase your chances of getting a loan. It’ll also make it easier for you to repay. You don’t want to saddle yourself with more debt than necessary, and you certainly don’t want to wind up with a large debt you can’t afford to repay.

Before applying, revisit your business plan, P&L statement, balance sheet, and financial forecasts. Determine if there are any areas you can minimize overhead, cut variable costs, or bring in additional revenue. Run multiple forecasts for best, worst, and actual scenarios to determine how much of a loan you need and can afford if things turn south.

Then apply for that realistic amount. If things go well and you need more to grow, you’re in a better position to pay off your current loan and apply for more financing.

What types of business loans are available for bad credit?

For those with bad credit, the door to getting funded isn’t completely closed. But every financing option is different, and it will take some research on your end to find the best fit for you. Here are the most common lending options you’ll come across to get you started.

Traditional bank loans

This option is less likely to work out for those with bad credit because traditional lenders have limits on who they will finance. That said, it isn’t impossible. Your interest rate will however be higher than a standard rate and more collateral will probably be required of you than a traditional recipient. 

If you think you may still qualify, take a look at some of the loan options offered by the SBA.

Microloan

A microloan is similar to a traditional bank loan, but they often come from alternative lenders like credit unions. 

A microloan tends to be easier to get for those with subpar credit because the loan amounts, as the name indicates, are small, typically fifty thousand dollars or less. Because of this, the credit requirements for these loans are also lower. 

If this amount of funding suits your needs, this is a great option. The SBA has a microloan program, and there are several alternative lending options available such as Kiva and Accion.

Fintech lenders

The number of digital and financial technology lenders seems to grow every single day. And for those with bad credit, this is absolutely a good thing. These lenders typically require very different requirements to apply and look at your business track-record and financials more than your credit. 

Before applying, you’ll want to check out a lenders track record, services, application requirements, and customer support to see what you’re getting into. You may need to stay within their ecosystem to get financing with better loan terms and higher funding options in the future.

Merchant cash advance

Also known as a business cash advance, this option is only applicable to those having cash flow problems who would need ten thousand dollars or less. Cash advances usually have very high-interest rates meaning that you will almost certainly pay more in the long run than the initial loan, especially if you miss a payment. Be certain you can repay on time before going this route.

Business credit card

If you can secure a credit card in your company name and make purchases and on-time payments, you can get financing and start building good business credit at the same time. Of course, the credit limit, interest rate, and terms of payment will vary, and each bank or credit union will have eligibility requirements, so this option will not work for everyone.

Home equity line of credit

Otherwise known as “betting the farm,” it goes without saying that this is an extremely high-risk option, and only applies to those who own houses. You put up your house as collateral to secure a bank loan.

Revenue-based loan

This type of loan has a niche pool of recipients: you must have a credit score of over 550, your company must make more than a hundred thousand a year in sales, and the loan amount can not exceed ten percent of your revenue. You can receive this type of loan in as little as a week. If you fit these criteria, you can learn more here.

Friends and family

If you do have people in your life who could invest in your business, getting a loan from friends and family is sometimes an option. Of course, for many entrepreneurs who are just starting out and in need of cash, this just isn’t a possibility. 

Either the amount they need is too high, or their circle of friends and family is small or possibly strapped for money themselves. Your friends and family may think it’s too risky because of your bad credit as well.

What to consider before applying for a business loan

Why each type of lender varies in regards to requirements, benefits, and drawbacks there are some core elements to consider before applying to any of them.

Required documentation

Different lenders require more or less financial and planning documents to be considered. The best thing you can do is keep your planning and financial documents up to date, and find lenders that fit how long you’ve been in business. If they ask for more documentation beyond the years you’ve been in business, find alternatives to support your case instead.

Annual percentage rate (APR)

This is simply the annual interest rate you’ll be paying on your loan. Typically a lower credit score or alternative lending option means you’ll have a higher APR. Make sure you can manage the interest before taking a loan and always look for options that provide the opportunity for lower interest rates over time.

Repayment schedule

How long do you have to repay the loan? Are there long and short-term options with different APRs and fees? Make sure you know how long you have and what the possible options are to decrease additional costs.

Down payment

There isn’t always going to be a required down payment depending on your lender. And they’ll often accept some form of collateral if one is necessary. In some cases, you may want to look for options that provide better terms (interest rate and time to repay) in exchange for an initial payment.

Additional costs and fees

There will always be some additional or underlying fees to be aware of. Processing, underwriting, and late payment fees as well as closing costs can tack on additional expenses you may not be prepared for. Ask about these up front and be sure you can cover them or have them waived by the lender.

Improve your chances by being prepared

No matter your credit score, business history, or current financial state, the best thing you can do to improve your chances of being approved for funding is to prepare ahead of time. Do your research, vet your lending options, and review your business plan and financials to ensure a loan makes sense for you right now. Doing so will ensure that you can approach any lender with confidence and the documentation necessary to be approved.

If you need to create or update your business plan, you can get started with our free business plan template. And if you’re looking for a simpler option that can also help you develop an investor-ready pitch deck, you may want to check out LivePlan. With LivePlan, your plan is more than a stack of paper for lenders to look at, it becomes a tool for growth. With automatic financials and step-by-step guidance you can spend less time building your plan and more time running your business.

Now no matter the business planning option you choose, just getting your plan in order for investors is a vital step to acquire funding. Make everything clear, easy to digest, and focus on the strengths of your business to improve your chances of being approved, even with bad credit.

What is alternative funding?

Simply put, alternative funding is gaining financing for your company outside of traditional bank loans to gain capital. Many of these alternative sources exist online, and you may consider pursuing this funding route if you’ve been turned down for loans in the past, have poor credit, or are unsure of how much funding you really need for your business. 

But understanding and navigating your alternative funding options can be complicated. To help you find the best funding to fit your needs, read on for the top 8 alternative financing options.

1. Traditional loans

While you may be familiar with and looking to steer clear of traditional bank loans, there are still more attractive options offered to gain capital from banks. SBA and small business lending funds, for example, act as alternatives to typical bank loans. 

These loans and funds are set aside specifically for small businesses and entrepreneurs. Typically, they also offer more attractive terms and less severe penalties which can be beneficial for startups that are just starting to navigate their financial needs. With these forms of loans, it is important that you have a solid business plan in place before applying. 

2. Grants

A grant is financial assistance awarded by the federal, state, or local government. It is a specific amount of money given to an applicant who shows a promising chance of success. 

Because grants are money being awarded rather than simply borrowed, they are much more competitive to receive. While they are difficult to acquire and oftentimes require specific circumstances, grants are incredibly valuable. If you’re pursuing a grant, government and SBA options are likely the most common but difficult routes to go. However, there are resources like NAV and the National Association for the Self-Employed that can help you discover more open options to help make a grant easier to acquire.

3. Fintech

A recent emergence of financial technology lenders could serve as a beneficial alternative funding route. These lenders typically provide smaller loans, credit options, lower barriers to entry, and function solely online. 

Some notable options include Kabbage and PayPal, but the trick is to do your research. Each option has it’s own set of benefits and limitations, which can mean fewer funds available, being tied to a specific lender long-term or even higher interest rates. With fintech, companies can benefit from expanding their finance options, automated accounting, online payments, and more. 

4. Crowdfunding

Crowdfunding is another alternative source of funding that is typically beneficial for product launches. This avenue of financing is like launching a promo landing page to gauge interest; it’s a viable way to test the market. 

Crowdfunding has several benefits, but if you’re interested in going this route it’s important to note that each crowdfunding site differs. Some only allow funding for a limited time, some require you to meet your goal to receive any funds and others serve as long-term community sites. Be sure to read the fine print to really understand that you may get all or nothing if going this route.

5. Peer-to-Peer lending

Peer-to-peer lending is also referred to as social lending which essentially allows individual people to borrow and lend money to and from one another. Think of it as a combination of crowdfunding, loans, and angel investment. 

There are several online platforms that act as pitching services to connect you with investors for funds and insight or reach a community of like-minded individuals interested in investing. This form of funding tends to be more useful for established businesses that are looking to grow and typically requires a thorough pitch deck to showcase.

6. Venture Capital and Angel Investment

Venture capital or angel investments are individuals or firms that are willing to pump funds into startups. They are typically looking for a return (you would need an exit plan or growth plan) or a share of your business. 

This kind of funding is very applicable for specific industries (ie. tech, medical, online) and usually require your business to be somewhat disruptive and primed for growth. If this route seems like a good option for you, then a solid business plan and pitch deck are vital here.

7. Pitch competitions

This is another unique funding option that is really primed for startups or those working within an incubator. Pitch competitions typically require you to be located within a specific region, be at a specific revenue stage, or be part of a cohort of entrepreneurs. 

This form of funding is particularly beneficial for those with an established business looking to grow and is a great way to gain exposure for your business. Don’t be discouraged if you’re not a tech or medical startup. Depending on where you’re located, there are often regional or community-driven pitch contests that occur from time-to-time.

8. Bootstrapping

This traditional way of alternative funding basically consists of doing everything you can to acquire funding. While all of the options listed above are still viable, you will likely find yourself doing some sort of bootstrapping to prepare your business financially. 

Consider funding from friends and family, service or product presales, using your savings or selling assets, and even looking into lines of credit. Bootstrapping is really something every business owner should do to help feel out the early stages of understanding how much funding you need to operate. It encourages lean operations and can help you avoid taking out too much funding early on.

No matter the funding be prepared with your business plan

Seeking funding for your business in the more traditional style of bank loans can be challenging, and these alternative funding options can help you save time and rejection along the way. No matter the funding options you choose, it’s important to have a solid business plan to back up your business and better your chances of acquiring funds. 

You can download a professional and impressive business plan for free with our Business Plan Template. And if you’re looking for a simpler method that can help you with business planning, pitching, budgeting, forecasting, and performance tracking for your business, you may want to check out LivePlan.

Knowing how much money you need to start your business is critical, especially if you’re looking to raise money from investors or get a loan from a bank. 

If you overshoot and ask for too much, you not only risk rejection, but you also risk paying interest on money that you’re not spending. Ask for too little, and you risk running out of money before you’ve really given your new business a fair shot to get fully up and running.

There is unfortunately no single solution or even a specific dollar amount for individual industries. Every business is unique and costs are different depending on location — but fortunately, it’s not too difficult to calculate your startup costs. 

Here are the three steps you should follow to help you figure out how much money you need to start a business.

1. Create a business plan

Having an idea for a business is just the start of your business journey. To make it a reality, you need a detailed business plan.

Your business plan will help you define your business strategy which will inform your spending plan.

For example, if you’re starting a food truck, you’ll need to think about the kind of food truck you need. Do you need just a trailer that will stay parked in one location most of the time? Do you need a full-blown truck? What size? What kind of branding do you need? What equipment will you need?

Your business plan will help you think through everything you need to get your business started and help you think about the types of expenses that you’ll have as you get started.

If you need help with your business plan, check out our step-by-step guide.

2. Create a detailed financial forecast

With a business plan in place, you can start crunching some numbers.

You’ll want to think about and plan for the following two categories of spending.

Startup expenses and asset purchases

Startup expenses include money that you’re going to spend on things like permits, business licenses, website design, improvements to your storefront, etc.

Assets are for tangible things that you need to purchase. For example, you may need to purchase inventory, computers, office equipment, vehicles, kitchen equipment, and other physical assets. A good way to differentiate an asset from an expense is to think about assets as something you could sell.

Ongoing expenses after you get up and running

Finally, you’ll need to plan for ongoing expenses and forecast those for at least the first 2 years of business. Ongoing expenses will include rent, payroll, taxes, insurance, utilities, and marketing costs. Of course, you may have other ongoing expenses as well.

With all of your spending planned, you’ll want to look at the total spending prior to getting your doors open, before you collect your first payment from a customer.

Then, you’ll want to look at what it costs your business to keep its doors open while sales ramp-up to cover those ongoing expenses.

Initial plus ongoing expenses provide a clear picture

Combine those two numbers and you’ll have a good estimate of how much money you’ll need to start your business.

A helpful tool in all of this is a cash flow forecast. You can use spreadsheets to generate your forecast, or you can use software like LivePlan to streamline the process. The idea here is to get a complete financial picture of your business and how much money is moving into and out of your business.

You can then add money to your financial forecast – loans, savings, and investment – to see how much is needed to keep you afloat while your business ramps up.

In the end, you’ll not only see how much money you need to start your business, but you’ll also see how long it will take to break even on your investment and start turning a profit.

3. Plan for the worst

Just because your cash flow forecast says you need $50,000 in startup funding doesn’t mean that’s all you’ll ever need. You should still plan for the worst. 

To be on the safe side, it makes sense to secure 130% of the amount your forecast predicts—an extra third or so of your expected need, to provide a cushion.

After all, starting a business never goes exactly to plan. Things typically take longer than expected and cost more than planned. You’ll want to have a bit of a safety net to cover the unexpected.

Knowing the amount of startup cash you’ll need is crucial when you go to a bank or chat with prospective investors. If you’ve followed these steps, you’ve done your homework and should be able to answer any questions that come your way about potential funding.