There is a need to write a solid business plan if you are to get funded. Any lender will want to know how soon they can expect to get their ROI (Return on Investment). The type of business you have and the market opportunities for it should determine the type of lender you approach with your business plan. Looking for the wrong financing is not something we advise to waste time on. So where do you look for money?
- Venture Capital
This field of business is often misunderstood and criticised. The simple truth is that the people running venture groups are in charge of investing other people’s money. They will take it as their main responsibility to reduce investment risk to the lowest possible level. They will not likely take risks that go beyond the absolutely necessary. The result is that venture capital firms cannot generally afford to invest in startups, unless there is a combination of exceptional product opportunity, perfect market readiness and a competent, proven management team. If you can convince a room full of astute business people that your company can produce a 1:10 growth in a short period of time, then you are venture capital material.
- Venture Capital-Like Companies
A Private Placement company can provide funds for startups. Some wealthy individuals also tend to occasionally invest their funds in new promising startups. The private placement investor groups act similarly to venture capitalists and are sometimes referred to as “doctors and dentists” and the individual investors are known as “angels”. To find those groups and individuals you can start by approaching your local Small Business Development Center, business development incubators and similar organizations.
- Commercial Lenders
Banks are the most likely sources of financing for small businesses. They are not supposed to invest in startup businesses, however, and have a set of federal laws that limit them in this respect. If you own a business that is not a startup (and has been around for a few good years), then you may be able to borrow from the bank. The bank will most often grant you funds backed by your company’s inventory and assets, and the loan’s max volume will usually be determined by a set of formulas that calculate your holdings and pit their value together. You can often use your personal capital as well, such as home ownership, to back the loan and increase its size.
- The Small Business Administration
The SBA is known to offer funds to small businesses and startups. Those loans are almost always administered by “certified lenders”, i.e. banks. In case of startups, the SBA will normally require the borrower to supply one third of the required capital.
- Friends and Family
The hard truth is that if when you borrow money, you are putting that money at risk. Borrowing from a bank and failing to pay it back is bad and can lead to bankruptcy, foreclosures and other unpleasantries. But in the end, you close the business down and walk away. Lending from family or friends is not advisable. Before you accept their help, make sure you have full understanding of how easy it is to lose this money. Make sure they understand this as well so that both sides go into this relationship with their eyes wide open.
If you want to know more detail of how to find and approach those different lenders, and which options are best for your particular plan and scenario, call Business Plan Writers and we will help you figure things out.