Get
Funded
Lottery Tickets
A friend once dropped by to invite me to
accompany him to the local convenience store to purchase a
pair of lottery tickets. He was excited about the prospects
of winning what amounted to five or six million dollars at
the time. I politely declined his offer indicating that I
preferred to retreat to my backyard to do some digging. Puzzled,
he inquired as to the purpose of my digging - reasoning undoubtedly
that there would be plenty of time for puttering in the garden
when we returned. I nonchalantly replied that I was eager
to begin digging in search of the pot of gold that was potentially
buried in my backyard.
Free Info on our recommended Medical Transcription Program leading to an exciting home based medical transcription career
Frustrated, my friend wandered off in the
direction of the convenience store shaking his head and muttering
under his breath something about lost marbles and the loony
bin. The fact was, that my odds of discovering a fortune in
buried treasure in my backyard were slightly greater than
my friend's odds of winning the lottery.
The lottery and other forms of legalized
gambling should not rate high on your list of potential funding
alternatives.
Personal Savings
Ideally you should have sufficient cash
in a liquid savings account to meet all of your start-up costs
as well as see you through two to three months of operations.
If you do not have this amount of money saved up then you
should strongly consider one of two options:
- Begin more modestly - perhaps
on a part time basis from your home to minimize start-up
expenses.
- Hold off for a few months until
you can save more money.
The desirability of starting your business
debt free cannot be overemphasized. Excessive debt is one
of the greatest contributors to small business failure in
this country. Shunning debt will give you flexibility and
peace of mind and allow you to remain in control of your business
instead of being controlled by it.
Free Info on our recommended Medical Transcription Program leading to an exciting home based medical transcription career
Friends and Family
While loans from friends and family are
certainly among the most common sources of start-up capital
for new business ventures they are not without their problems.
Often these loans are made reluctantly out of a sense of duty.
If your business fails and you become incapable of repaying
these loans in a timely manner - or worse yet, not at all,
long term resentments may result and relationships may suffer.
A flippant or less than professional attitude toward loans
of this nature leads many small business owners to neglect
their commitments and repayment obligations to these trusting
individuals. Think carefully about the potential consequences
of borrowing from friends or family before making a request.
Private Investors
There are many wealthy individuals in communities
across the country that are seeking opportunities to invest
in high growth companies. Unfortunately, there are two significant
barriers that you will face in obtaining this type of financing.
First of all, these individuals are not easy to find. Second,
they generally prefer to work with someone who has a proven
track record.
Locating private investors can present a
real challenge. One of the best resources I can think of are
the "Angel Investor" databases that have cropped up recently
on the Internet. There are a number of sites such as
Source Capital Network that specialize in pairing entrepreneurs
with potential investors.
The Small Business Administration has an
excellent database that matches investors with fast-growing
small businesses. The Angel Capital Electronic Network (Ace-Net)
is an Internet based service which posts listings of high-growth
businesses and venture capitalists.
Ace-Net limits participation to investors
(referred to as "Angels") that demonstrate a financial net-worth
exceeding $1 million or an annual income greater than $200,000.
The SBA requires that all potential investors submit financial
statements to prove financial capability. Once approved, investors
are provided with a password and given access to the network.
Access by investors is password restricted to ensure the privacy
and security of the network.
Small businesses seeking venture capital
(referred to as "Gazelles") must show a modest track record.
Currently, a business must be generating annual sales of at
least $100,000 and show a doubling of revenues in the past
four years to qualify for a listing.
Participants in the network - both businesses
and investors, pay a modest up-front fee to be listed with
the service (typically under $500). Investment opportunities
on the network range from $250,000 to $5 million.
The SBA estimates that each year over 250,000
investors nationwide invest about $20 billion into small,
high-growth businesses.
You can access the SBA site over the Internet
at sba.gov or call your
regional SBA office for additional details on the program.
In addition to the Internet listings, local
CPA firms can often be a source of information on potential
investors. These firms have their finger on the pulse of many
wealthy individuals. What is more, they usually have a solid
understanding of the needs, requirements and risk tolerances
of each of their clients. The right introduction could lead
to a legitimate funding opportunity. Business brokers are
another potential source of contacts. Investors will often
call on business brokers to inquire about opportunities to
invest in small but promising companies.
Be aware that private investors will often
be looking for some kind of equity stake in your company.
If you are willing to cede some ownership and control, it
is possible to gain access to sufficient capital to give your
business a fast start.
As a brand new start-up organization, if
you are to have any success at all in attracting financing
from private investors you must have a well-documented and
highly polished business plan. A good business plan will summarize
your business objectives and articulate the marketing, operational
and financial strategies you will employ to achieve those
objectives. A business plan does not have to be lengthy, but
it does need to be credible and persuasive.
Wildly optimistic revenue and income projections
have no place in a professional business plan. Remember that
these investors didn't get where they are by being financially
naive. It is certainly good to appear ambitious and aggressive,
but sales projections that are seven standard deviations beyond
the best case scenario are not likely to impress anyone. Keep
things real and count on your credibility, enthusiasm and
professionalism to carry the day.
Free Info on our recommended Medical Transcription Program leading to an exciting home based medical transcription career
Bank Loans
The old adage that "the only ones who can
qualify for a bank loan are those who can prove they have
absolutely no need for the money" is sadly not far off the
mark. Banks generally like to see a record of healthy sales
and profits before they will undo their purse strings. In
addition, there is the matter of collateral. Banks are notorious
for demanding collateral well in excess of what seems adequate
to secure the loan. Their rule of thumb seems to be "the more
the better". Being highly collateralized allows the bank to
foreclose quickly on collateralized property and effortlessly
sell it at fire sale prices to satisfy the loan obligation
in the event of a default.
The key to obtaining bank financing is to
begin to develop a relationship with a lender early on. Open
up a business bank account and maintain a reasonable positive
balance. Take out a small loan collateralized by a certificate
of deposit and pay it off promptly. Discuss your business
with the lender and let him know that in time you will require
additional funding to finance your projected growth. Ultimately
you should request a revolving line of credit that is accessible
upon request and payable within a short period of time - generally
a couple of months. This is basically an ongoing working capital
loan which can be drawn on and paid off over and over to provide
the liquidity you need to meet your payroll and other obligations
while you wait for your accounts receivable to come in.
Microlenders
Microlending is quickly becoming an important
source of funding for small businesses. Microloans are defined
as business loans under $100,000. According to the Small Business
Administration, microlending activity is growing more than
25% per year, with total funding now approaching $16 billion.
Microlenders are typically community banks
which have chosen to allocate a portion of their resources
to this fast growing segment of the market. The SBA maintains
a listing of the most active microlending institutions in
each state.
Generally, microlenders will impose documentation
and lending requirements similar to those seen on traditional
loans. The advantage of working with microlenders is that
they specialize in small business loans. They understand the
needs of small businesses and have the expertise and resources
necessary to meet those needs.
Non-Bank Finance Companies
There are numerous Non-Bank Finance Companies
that cater to the financing needs of small businesses. Because
they specialize in lending to small businesses, they are typically
more creative in their approach to lending. They are also
typically more expensive than their traditional-bank counterparts.
Be aware that because they are accustomed
to making riskier loans, they will want to be well collateralized.
They are also very sophisticated and efficient when it comes
to foreclosing on collateral in the event of default.
Many of these companies have minimum loan
thresholds measured in the hundreds of thousands of dollars.
There are, however, companies willing to provide secured and
unsecured lines of credit, equipment leases and other forms
of financing to small businesses in lesser amounts. These
regional and national non-bank lenders can be found in the
Yellow Pages under Financing.
SBA Loans
The Small Business Administration (SBA)
loan is a business loan made by a local lending institution
and guaranteed by the federal government. This loan program
is designed to provide small businesses with important access
to capital, which as we have already discussed is often difficult
to come by.
While it is sometimes easier to qualify
for an SBA loan than a conventional business loan, you should
not assume that the process will not be stringent. If you
are serious about obtaining SBA funding you should be as thorough
and meticulous in the application process as you would be
for any other type of loan. Although the federal government
guarantees the loan, it still must be funded from the bank's
limited pool of lending resources. Additionally, the Small
Business Administration is coming under increased pressure
to push a portion of the loan liability back onto the local
lending institution. Simply put, if you are not considered
a good risk, you may have difficulty in qualifying for an
SBA loan.
Credit Cards
You would be hard pressed to find a more
expensive source of financing than a consumer credit card.
While it is true that many credit card companies are offering
marvelous introductory rates to attract new customers, these
rates usually are only good for a very limited period of time
- typically six months or less. The astute credit card companies
have discovered through experience that the average hapless
consumer will jump at the opportunity to receive easy credit
at such a low rate. Within a very few months most of these
cards will be charged to their maximum limits. When the introductory
rate expires, the consumer, having no way to pay off the balance,
watches helplessly as the interest rate doubles or triples.
After five or six years of making minimum payments, the credit
card will finally be paid off. Over that time the consumer
will have paid the credit card company three or four times
what was originally borrowed.
Many financial institutions have begun to
offer business credit cards. These cards are designed to provide
small businesses with a modest line of credit to finance their
start-up and ongoing operations. While business credit cards
typically carry a higher interest rate than conventional lines
of credit, if used carefully they can help a new business
establish credit with a lending institution.
No purchase should be made on a credit
card without a plan to pay off the balance within a matter
of a few months. The idea behind a business credit
card is to provide a business with short-term liquidity -
not saddle it with long-term debt.
Free Info on our recommended Medical Transcription Program leading to an exciting home based medical transcription career
|