Exclusive Insights Revealed: Startup Business Funding Requirements

How to get startup funding from banks

Are you a new business owner unsure how to get business funding? Banks don't provide clear guidance on accessing their funding options. There is not a lot of information on the internet about business funding requirements. But don't worry, this article is here to help! We'll walk you through startup funding requirements, help you make wise funding decisions, and navigate the process of obtaining startup capital. We will start with learning about startup capital, calculating your expenses because you will want to know what to do with the money you get for your business. We will also take a look at some startup tips that might interest you if you are looking to prepare for business funding. You can scroll to that section, if you like,

Let's dive in and simplify the journey to financial support for your startup.

Startup Capital

There's a common misconception about starting a business. Some people believe they can launch a business without spending money. They think they can do it for free by uploading a video on social media, ask friends to share it, and then their business will scale up. This idea comes from influencer culture, which has now spread to the business world. As a result, millions of people start businesses every year in the United States. In 2023, there were nearly 5.5 million businesses started. However, the majority of these businesses will end up closing within three years. The main reason for this is a lack of capital.

Entrepreneurs need to consider the funds required to start and run a business successfully. This involves getting their product or service in front of the right customers, generating revenue, and setting up successful systems.

Venture capital is a common way for startups to get funding. But it has its ups and downs. If you go this route, you'll have to share your profits with investors for a while. At K&D Consulting Enterprises, we suggest businesses try to keep most of their profits. Instead of giving up part of your business, you can look for loans from banks or other lenders.

Venture capital can give your business a big boost, but it comes with strings attached. Investors expect a lot in return, and they may want a say in how your business is run. Plus, they might push you to grow quickly, even if it's not the best move for your business in the long run.

Choosing loans from banks or lenders gives you more control. You keep ownership of your business and can make decisions without outside pressure. Plus, loan repayment terms are usually flexible, so you can manage your finances better. It's a safer bet for many startups.

Therefore, we will be focusing on getting funding from lenders.

Before seeking startup capital, there are some essential steps to complete because many entrepreneurs are unsure about how much money they need for their business and how to use their business funding. Here's how to determine the amount required to get started.

Begin by looking at your startup expenses.

Startup Expenses

Identify your startup expenses

The first step is to identify your startup expenses, which will vary depending on your industry. Some industries have higher overhead costs than others. Your basic startup expenses related to your business structure will typically include:

• Business registration (such as LLC, S-Corp, or C-Corp)

• Setting up a business bank account (depositing funds to establish a relationship)

• Creating a website (including domain registration, paying for a website developer, and setting up a business email with G-suite or a domain provider)

• Obtaining a merchant account (there are usually no initial fees, but fees are incurred when customers make purchases from your website)

• Purchasing initial inventory and supplies

In addition to these basic startup costs, there are industry specific startup expenses that business owners may encounter. It's crucial for the business owner to cover these initial expenses before seeking funding from banks or alternative lenders. Here are some examples of industry specific startup costs:

1. Technology Startup:

   • Software development costs

   • Hardware (servers, computers, etc.)

   • Licensing fees for software tools

   • Website and app development costs

   • Cloud services (such as AWS, Azure, etc.)

   • Hiring technical talent

   • Marketing and advertising for product launch

2. Food and Beverage Startup:

   • Lease or purchase of a commercial kitchen space

   • Equipment (ovens, refrigerators, etc.)

   • Ingredients and supplies

   • Packaging and labeling

   • Health permits and licenses

   • Marketing and branding

   • Staff wages

3. Retail Startup (Brick n Mortar):

   • Lease or purchase of retail space

   • Inventory purchase

   • Store fixtures and displays

   • Point-of-sale system

   • Employee wages

   • Utilities and insurance for the store

   • Marketing and advertising

4. Service based Startup (Consulting, Marketing Agency, etc.):

   • Office space or co-working membership

   • Marketing materials

   • Website development

   • Professional licenses and certifications (optional)

   • Employee salaries or contractor fees

   • Client acquisition costs

   • Insurance and legal fees

5. Manufacturing Startup:

   • Equipment and machinery

   • Raw materials

   • Factory or manufacturing space lease or purchase

   • Labor costs

   • Quality control and testing equipment

   • Packaging materials

   • Compliance and regulatory costs

6. Healthcare Startup (Telemedicine, Biotech, etc.):

   • Research and development costs

   • Regulatory compliance fees

   • Clinical trials

   • Equipment and technology (medical devices, software, etc.)

   • Hiring medical professionals and researchers

   • Marketing and patient acquisition

   • Insurance and legal fees

7. Education Startup (EdTech, Tutoring, etc.):

   • Curriculum development

   • Technology infrastructure (online learning platforms, educational software, etc.)

   • Classroom or office space

   • Teacher or instructor salaries

   • Marketing and advertising

   • Student acquisition costs

   • Compliance with educational standards and regulations

   Construction and Real Estate Development:

   • Land acquisition or leasing costs

   • Permits and zoning fees

   • Architectural and engineering services

   • Construction materials and labor

   • Equipment rentals or purchases

   • Marketing and advertising for property sales or rentals

   • Insurance for construction projects

8. Financial Services Startup (Fintech, Insurtech, etc.):

   • Regulatory compliance costs

   • Software development for financial platforms

   • Data security and privacy measures

   • Licensing fees

   • Hiring financial experts and developers

   • Marketing and customer acquisition

   • Insurance against financial liabilities

9. Travel and Hospitality Startup (Tourism, Accommodation, etc.):

   • Lease or purchase of property (hotels, hostels, etc.)

   • Interior design and furnishing

   • Reservation and booking systems

   • Staff training and wages

   • Marketing and promotion campaigns

   • Travel agency licenses and permits

   • Maintenance and upkeep costs

10. Transportation Startup (Ridesharing, Delivery, etc.):

    • Vehicle purchases or leases

    • Vehicle maintenance and fuel costs

    • Insurance for vehicles and drivers

    • Technology development for app-based services

    • Driver acquisition and training

    • Marketing and user acquisition

    • Regulatory compliance fees

Now, it is important that you calculate your startup costs once you identify them.

Calculate Startup Costs

The next step is to calculate your startup costs beyond the initial investment made by the business owner. On average, starting a business typically costs around $40,000. However, this doesn't necessarily mean that you'll need exactly $40,000 for your business. Your actual expenses could be higher or lower depending on various factors. Here's how you can calculate your startup costs:

1. List all the necessary expenses. Make a comprehensive list of all the expenses you anticipate for starting and running your business. This includes everything from equipment and supplies to marketing and operational costs.

2. Research costs. Take the time to research and gather accurate estimates for each expense on your list. This might involve reaching out to suppliers, contractors, or service providers to get quotes.

3. Add up the costs. Once you have gathered all the necessary information, add up the costs to get a total estimate of your startup expenses. Be sure to account for any unforeseen or miscellaneous expenses that may arise.

4. Plan for contingencies. It's wise to allocate some extra funds as a buffer for unexpected expenses or emergencies. This can help ensure that you're prepared for any surprises that may come up during the startup process.

Banks base their funding decisions on multiple factors within their system. If you ask a teller or even the branch manager, they likely won't have the full picture. This is because they aren't privy to all the details, and even if they were, they're not allowed to disclose them. However, as a business consultant, it's my responsibility to uncover this information and share it with our clients. Providing accurate insights has enabled our clients to secure the initial funding required to kickstart their businesses.

Startup Funding Decisions By Banks And Alternative Lenders

Banks have specific criteria for deciding whom to lend to, but many people are unaware of these requirements. They might bring their business registration or business plan to the bank hoping to secure funding, but it's not that straightforward. Especially if your business is brand new, most banks are hesitant to lend to startups. They're unsure if your business idea will be profitable, viewing your newly registered business akin to a newborn baby. Just like lending money to a baby doesn't make sense since they can't walk or talk, banks are cautious about lending to businesses without established track records.

Typically, banks require several factors before approving a loan: cash flow from the business, collateral from the business owner, and good credit both personally and for the business. The simplest way for a business to secure funding from a bank is by using their credit. By building up a positive credit history, businesses can qualify for lines of credit and various credit card products.

However, this doesn't mean that startups are completely out of luck when it comes to bank funding. Some banks offer specific programs or loans designed for startups, though they often require additional documentation or may come with higher interest rates. Additionally, alternative lending options such as online lenders or Small Business Administration (SBA) loans can be viable alternatives for startups looking for financing.

Understanding the lending criteria of banks and alternative lenders is crucial for startups seeking funding. By being aware of these requirements, businesses can better prepare themselves and increase their chances of securing the funding they need to succeed. Now, let's explore each of these criteria in more detail and discuss strategies for meeting them effectively.

Startup Funding Tips

In this section, I'll provide some practical tips for securing funding for your business, specifically focusing on funding your initial startup investment.

1. Build up your cashflow from your job. Start by allocating a portion of your paycheck to set aside funds for your business expenses, as mentioned earlier in this article. This steady stream of income can serve as a reliable source of funding for your business's initial needs.

2. Grow your cashflow through investments. Consider investing the money you've set aside in vehicles that offer potential for growth. Look for investment options that provide accessible returns over time. An added benefit is that these investments can also support your living expenses while you transition to full-time entrepreneurship. If you don't know how to grow your cashflow we have a course that will help you get started.

3. Maintain a strong personal credit profile. A robust personal credit score is essential for securing business funding. Aim for a credit score of 720 or higher, as this demonstrates your creditworthiness to potential lenders. Also, ensure that your credit profile is diverse, including personal loans and credit cards with minimum limits ranging from $5,000 to $10,000. Lenders often favor home owners as they can demonstrate the ability to handle large loans. If you know that your credit score and credit profile is not where it should be, we will assist you can fixing any challenging remarks that are on your credit.

4. Ensure completeness and consistency in your business structure. Before seeking funding, ensure that your business structure is fully established and documented. Verify that all information matches across all documentation, including business registration, financial records, and legal documents. Consistency and completeness in your business structure instill confidence in potential lenders.

Navigating the world of startup funding can be daunting, especially for new business owners. While banks may not always provide clear guidance on accessing funding options, understanding the requirements and exploring alternative sources of funding can significantly increase your chances of success. By following the steps outlined in this article, you can better prepare yourself to secure the funding needed to launch and grow your business.

At K&D Consulting Enterprises, we specialize in helping businesses like yours navigate the complexities of startup funding. Our team of experienced consultants is dedicated to providing personalized guidance and support tailored to your specific needs. Whether you're seeking funding from banks, alternative lenders, or exploring other options, we're here to help you every step of the way.

Ready to take the next step in securing funding for your business? Schedule a consultation with our team today! We'll work with you to assess your funding needs, develop a tailored funding strategy, and guide you through the process of obtaining startup capital. Don't let funding obstacles hold your business back – let us help you turn your vision into reality. Schedule your consultation now and take the first step towards financial success!