First Step Marketing

A surprisingly large number of entrepreneurs raise at least part of the capital for start-up and operating expenses by asking friends and family and previous business colleagues to lend a monetary hand. Though some may ask for partial ownership in your fledgling firm, most will be satisfied by your personal guarantee of a payback date— usually with interest. Though you may be the most enthusiastic person in the world when it comes to your business, many people will want to know about your own financial commitment before they invest anything. To some it may not matter; but most people will want to know that you’re willing to risk some of your own assets before they will provide your business with the capital you desperately need.

Though you might like to believe that banks and other financial institutions are just waiting for you to show up and give your five-minute spiel before they cheerfully write you a check for whatever amount you need to start your new business, the truth is that given their federal ties and restrictions, they will probably be reluctant to loan a start-up business money until a decent track record and a viable business has been established. Even then, they may require a significant chunk of collateral or set stringent contract terms to safeguard their investment.

Banks are more likely to give you a personal loan even though you will use it for business purposes. It definitely helps if you already have an established relationship with a bank for your personal accounts; you may want to ask for a small loan in the name of your business that you can pay back in one year. Once you have established a record of prompt payments with your business, the bank may be more likely to loan you larger amounts or provide you with a line of credit that you can draw against as needed.

The Small Business Administration also has numerous guaranteed loan programs available to small businesses, even start-ups, but they tend to be associated with banks, so you still have to apply for these loans through banks.

Of course, depending upon your business, arranging for customers to pay up front—while providing a small discount—will help improve the cash flow of any business. You’ll need to gauge your business, customers, and how much money you are likely to generate from this technique, and if it’s worth it to provide the discount. In many cases, it is.

Venture capitalists and other equity investors are in the headlines for their help in growing high- tech or other companies 1,000 percent or more each year. But for the great majority of small companies who do not expect to gross more than a hundred thousand dollars in the first year, venture capital is another galaxy. Venture capital and private angel investors look for fast growth, and incredible returns on their money in a short period of time. The bad news is that these investors typically request a sizable ownership chunk-25 to 50 percent usually—and somewhere down the road, if they don’t agree with the way you’re growing your company, they won’t hesitate to unceremoniously boot you out.

As a rule, the acceptance rate for businesses they agree to fund is ridiculously low: they get bombarded with thousands of business plans, but they usually invest in a few can’t-lose companies. Most entrepreneurs will never need a venture capitalist.

How much are you willing to risk in order to start your business? If you’re like many Americans, you’re probably long on debt and possessions but short on savings. If your heart skipped a beat when you first saw the total amount you think you need to start your business, there are options. Some are more drastic than others, but remember: Running a business is a risky venture in most parts. You’ll have to take risks every day in the course of doing business. You might as well get used to it now.

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Finding the Funds You Need continued

This entry was posted on Monday, November 10th, 2008 at 9:04 pm and is filed under Business Plans, financial. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.