Music Business Loans
Music business loans are not categorically different from other small business loans. When you apply for a music business loan, you will have to go through the same general process as a lawyer starting a practice or a stylist opening a salon. This means you will be evaluated on several criteria, among these will be: your financial stability, the viability of your business plan, any federal incentives and your ability to find investors.
Evaluation of Financial Stability
When you are opening a new business in the music industry, you will have to use your personal credit in order to secure a business startup loan. Once the business has been profitable for some time, it should develop its own financial identity and credit. At that point, you will be able to seek an expansion loan based on the business's balance sheet instead of your credit score. Using assets as collateral can provide your lender with more assurance of your stability, and may be a good consideration if you are seeking a lower interest rate.
Evaluation of Business Plan
You will need to have a business plan that shows you have a good chance of success. A music business will likely be classified as a high-risk opportunity for most lenders. The music industry is very unpredictable, and many independent record labels fail before they even get off of the ground. Your business plan should show why you are prepared for success. Important information includes any experience you have in the industry, success you have had thus far, the need for your business in the current market, contacts you intend to use to market your product, etc. You will also need financial projections for the first, third and fifth year of your business. This will show a lender you have seriously considered how you will be profitable and repay your loans.
Eligibility for Federal Incentives
The federal government offers many incentives for small business loans. For example, the Small Business Administration will guarantee some loans to young or economically disadvantaged entrepreneurs. If you can qualify for one of these incentive programs, your loan will be much cheaper. Talk with your lenders about loan programs you may qualify for. The lender will benefit in the end, and they should be happy to assist you in research and application for these loans. There are very few negative consequences to applying for a federal loan guarantee, so do not be afraid of rejection.
Ability to Attract Subordinate Lenders
Most music businesses will have a number of private investors interested in their success. If you have secured funding from investors, you will be able to show a lending institution experts in the industry feel you have a chance at success. Further, unsecured loans from investors will appear as new assets on your business's balance sheet. Using investor financing will mean you have to share some of your profit, and potentially control, with another party. In the end, however, investor funds can make your business much more successful than senior loans alone.