Step 24: Seek Financing
The Concept:
You've researched, you've planned, you've put it all to paper—now you need money to make it all happen. Pursue sources of financing most likely to help you given your financial situation and the soundness of your plan.
What you need to know:
There are three kinds of financing: Owner financing (using your own money entirely), debt financing (loans to be repaid and secured with collateral) and equity financing (selling a portion of your business to investors who may or may not participate in its operation).
Review your completed business plan with professionals who specialize in business financing. Their experience and perspective can help you comply with the many state and federal securities laws when seeking financing.
Approach your chosen financing source with at least the executive summary of the business plan in hand. Briefly review the proposal and determine if there is any potential to explore a financial relationship. Then submit the full business plan and personal financial statement, summarizing total assets and total liabilities, for consideration. Supply whatever additional information is requested to answer any questions the lender, partner or investor may have.
If your financing proposal is approved, it may be done conditionally. In some cases, for instance, a bank may require the Small Business Administration to back up a portion of the loan, or that you bring on a co-signer, or that you secure additional equity investment.
Whatever your source of financing, be flexible since loans and investments can be structured in many ways. Negotiate on the terms, rate, closing costs and repayment schedule. Make sure that negotiated terms work within your proposed business budget. If they do not work, propose to rework the structure or do not accept the financing.
If your initial financing source declines to participate, strongly consider the reasons given for denial. Either strengthen your proposal accordingly or re-direct your search to a more appropriate funding source and begin the financing process again.
Points to consider:
When and how quickly am I required to repay the money?
Are there fees associated with the type of financing I'm seeking? Can I afford them?
Have I fully explored the continuum of funding sources (e.g. family/friends, personal money or assets, venture capitalists, public and private sectors) before approaching an external funding source?
What kinds of security (guarantors, cosigner, mortgage, insurance policies, savings, or other collateral) can I offer a lender?
Can you attain the needed funding to start your business? If not, can you make changes to make financing feasible? |
