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Entrepreneurs and small-business owners are often confronted with unique financial challenges, including business accounts, loan worthiness, credit, capital and cash flow issues. “It’s essential for anyone who is starting or running a business to consider the options and do some research before choosing a financial institution,” said Nicole Cypers, Vice President of Public Relations at America First Credit Union. “It’s also important to understand their needs and offer dedicated avenues of support. In many cases, credit unions provide benefits that aren’t available at traditional banks.” Here’s a look at common issues entrepreneurs face, as well as some possible solutions.
Early financial roadblocks for startups
Adequate funding to launch, maintain and eventually expand a business is crucial for its success. “Startups make heavy use of personal equity and traditional debt, with over half using their own personal savings,” the U.S. Small Business Administration Office of Advocacy reported in 2016. While some business owners are willing to risk their personal savings to support their venture, this isn’t viable for all aspiring entrepreneurs.
Others have unreasonable expectations when it comes to funding. “Many in today’s business world have the impression they’ll receive venture capital or angel investment but typically that’s not the case,” Cypers said. According to the SBA Office of Advocacy, venture and angel capital comprise a small part of business financing—less than 2%.
Business loans are another source of start-up capital. In the right circumstances, they can be a fantastic solution. “If you’re considering a small business loan, compare what’s available in terms of rate, collateral, repayment and access,” Cypers said. “For some, the idea of accruing debt to get their business off the ground can be daunting, but not all debt is bad. Find a good loan with a solid repayment plan.”
Loans can also be a source of cash flow, which is often a stumbling block for young businesses. Even if a company is breaking even or showing monthly profits, it can still struggle with day-to-day finances, depending on the timing of payroll, bills and more. Having a secure loan behind you is a smart way to circumvent these issues, promote growth and alleviate pressure.
A helping hand in the form of funding, services and networking opportunities
In many ways, credit unions are a natural fit for startups and entrepreneurs. They have a local presence and stay in tune with the voices of the marketplace. Credit unions deliver services that cater to small businesses, and “credit unions are not-for-profit and focused solely on the member’s financial well-being, which means we’re usually able to provide better loan flexibility,” Cypers said. “Approvals can also move more quickly because there’s generally less red-tape in the underwriting process. Our member-owned structure is appealing to entrepreneurs who are passionate about building personal relationships within the community.”
Set up a business account
A dedicated account keeps your business and personal finances separate. This helps streamline operations and provide better visibility of what money is coming in and when it’s going out. “We offer a wide range of business services, including checking and savings accounts, lines of credit, tax and payroll services and more,” Cypers said.
Improve your credit
Spend time building and improving your credit score. A positive record is crucial for entrepreneurs, no matter your age, because it affects loan worthiness.