An investment of $12,400 is not a trivial amount from a personal standpoint,
but it's a relatively small amount for most lenders. This figure is
significantly less than the average business loan (and most new car loans for
that matter), leading to many streamlined financing possibilities.
Individuals with a reasonable credit history should feel confident that they can
obtain a hassle-free loan for their new business.
There are three strategies that make the most sense for financing this
- Bank Loan
- IdeaVision Payment Plan
Combining strategies works well also. The information below is provided to help you
understand each option.
Self-financing makes use of savings and other personal resources (along with
those of friends
and family) to fund your business. It's a popular approach because credit
checks aren't required, plus the process is relatively quick and easy. Consider
if one or more of the following self-financing methods would work for you:
|Family / Friends
||Some are more comfortable with asking than others, but it's
one of the most common methods used.
||Another common method as about one third of start-ups are financed
with one or more cards. Rates must be managed carefully, but special offers can
work to your advantage.
||Borrow from your retirement plan without penalty up to 50% of the account value
($50,000 maximum). You have five years to pay the money back (with
interest), which replenishes your account.
||Whole life policies (not term insurance) accrue a cash value which you
can borrow against.
Obtaining a loan from banks or other lenders is another financing option.
More financial scrutiny is involved than with self-financing, including a review
of your credit history. However, you can simplify the process
significantly with the proper strategy.
The first step is to
understand the difference between the two major loan categories: personal and
- Personal loans are designed to cover a wide variety of family needs
such as bill payments, remodeling, college tuition and other major expenses.
However, approval of the loan isn't usually tied to a specific item.
Thus, you can use the money for any purpose, including starting and operating
- Business loans, in contrast, are tied to a specific business.
Approval generally requires detailed business plans and a thorough financial
The two types of loans are compared in the following chart:
||Any personal expense
||Tied to a specific business
||Typically 50K and higher
||2 years or more in the specific business
||Basic credit history
||Detailed business plans
||Quick, often within a week
||Varies, but much longer
Based on the loan amount, it's recommended that you pursue a personal
loan for this business because you'll have a better chance of obtaining the
loan. The simplicity, quick approval and flexibility of personal loans are
added benefits for taking this path. A business loan is designed for ventures that
require a higher investment level than ours.
The most common types of personal loans are described below:
||Loan that doesn't require any collateral. Credit history is
important because lender assumes increased risk.
||Second mortgage based on the equity built up in your home. The
equity is used as collateral for the loan.
||Refinance your first mortgage. If enough equity is available to
finance more than is currently owed, you can access the difference (known
as cash-out refinancing) for your business.
|Line of Credit
||Range of credit that you can access and pay back as desired up to a maximum amount
borrowed at one time (like a credit card, but at lower rates). Both unsecured and
home equity types are available.
A visit to your local bank or credit union will help you determine which
loan type is best for you. It's also easy to apply online now with many of
the national lenders.
IdeaVision Payment Plan
The traditional financing options above typically result in the
lowest total cost. Thus, you're encouraged to pursue one of them if possible.
However, IdeaVision also offers a payment plan to assist you if one of the
traditional options won't work for your situation.
The plan consists of a down payment ($5000 minimum) and equal
monthly payments that are automatically withdrawn from a checking or similar
account over a term up to 18 months maximum. A fee is charged based on 10%
of the purchase balance, plus $50 per month. The fee is allocated within
the monthly payments.
An example payment plan is outlined below based on the minimum
down payment and maximum term:
||Due at time of business purchase
||Business price ($12,400) -
evaluation deposit ($200) -
||1st payment due one month after business purchase
||$720 (10% of purchase balance) +
$900 ($50 x # months)
||Purchase balance + fee
||Total due / # months via automatic withdrawal from checking or
similar account only
||Total of down payment and monthly payments
Note that you'll reduce the fee
and total payment (perhaps considerably) by increasing the down payment and/or decreasing the number of
payments. There will be a corresponding change to the monthly payment.
This option is a payment plan, not a loan tied to an interest
rate. No third party lender is involved. As such, application and
credit checks aren't required, nor are there any closing costs.
It's still a serious commitment though. A professional payment management
firm is used to implement the program, including collections responsibility if
To support this option, IdeaVision may need to obtain financing to fund its own operations since full payment of the license is
delayed. The company is thus taking on some of the financing burden to
help you, relying on its strong credit and financial history to do so. The fee compensates
IdeaVision for its own borrowing costs, administrative charges and risk it
assumes to make this option possible.
Using more than one financing strategy also makes sense and is
done frequently. For example, you may be able to borrow a certain amount
from family or your 401k, then take out a loan for the balance.
Likewise, the payment plan could be utilized by applying the down payment with a
credit card. Regardless, we'll be happy to help you assess your options so that you can structure a financing
plan that works for you.