In today’s business funding environment it is clear that some of the tech giants out there like Google, Facebook and Twitter have alerted entrepreneurs to the opportunity to start a business by raising capital and if you have the right idea, service or product the rewards can be incredible. However recent studies show that less than 1% of businesses actually receive or qualify for venture capital which is why the skill of mastering funding via creative financing is vital for entrepreneurs.
The next place most entrepreneurs look for funding is at the bank, unfortunately for new business owners the vast majority of business owners are denied funding at their local bank due to the fact that these banks lend almost exclusively through the SBA program which is fairly stringent and requires a 25% down payment often as well as significant collateral like equity in a property, expensive equipment and so forth. For most new businesses this is a tough requirement to satisfy which is why most are denied funding.
The end result is that entrepreneurs must be more creative in securing capital and mastering funding if they want to succeed, but in reality this is how it has always been, so let’s look at 3 entrepreneurs who successfully did this and how they did it.
Sam Walton started what would become Walmart on a $20,000 loan, but it was his future funding mastery that would lead to the exponential growth of Walmart. He was able to build a relationship with a local lender in order to finance an ice cream machine which led to significant increases in traffic, but his biggest results came about a decade later when he opened the first big Walmart. Prior to that he had smaller stores, and saw the opportunity of opening a larger box store which was his first official Walmart. Investors would not give him a dime so he borrowed to the “hilt” is what his book says. So that meant using every asset to pull cash out of and also meant tapping in to all lender relationships he had built over the years and another decade later when Walmart went public he paid off all of the debt and continued to aggressively secure financing in order to grow Walmart. The lesson learned here is to constantly build relationships with a multitude of lenders if you want to aggressively expand and the skill of mastering funding cannot be overstated.
Another great entrepreneur Kevin Plank started his business Under Armour by understanding the power of credit cards. In today’s world many like Shark Tank’s Mark Cuban say you should avoid starting a business on a loan or credit cards. Probably so that he and his “sharks” can take away ownership and equity in the business if we’re all being transparent. Kevin Plank could have done that, but instead opted to establish 5 credit card accounts and systematically increase the limits to where he could access $40,000 to manufacture his unique fabric. A year later he landed his first sale with a college football team and the rest is history, he now commands a business worth billions and it all started because he knew credit cards had affordable monthly payments and in many cases are much more affordable than traditional business financing.
Building lender relationships and understanding the power of credit led these 2 entrepreneurs to create multi-billion dollar companies and today’s entrepreneurs can follow these same examples to build their own life changing businesses.