Tired of hearing 'NO' when seeking funding for your start-up?
by Business Money Today - Octoer 13, 2009
Many new business owners spend a substantial quantity of time figuring out the amount of cash they need to grow their business from start-up to profitability.
This is the way it should be - if you cannot make it to profitability - then this small business venture is not feasible for you.
Business owners need to understand the capital requirement of their business as it takes a considerable amount of time and money to grow a successful business from the ground up.
But, when it actually comes to raising those funds, many new entrepreneurs make the same mistake over and over again - trying to raise all they need in one single event.
Here is the problem: Let's say that it will take your business 18 months to breakeven and in those 18 months you will have to raise and fund some $150,000 into your business (your small business may need more or less - this is just for illustration purposes).
Most business owners will attempt to go out and raise that $150,000 before launching. But, not many lenders fund new businesses especially if the amount being sought is over $25,000. Thus, most of these new business owners are turned down over and over again - as it is just too much risk for any lender. But, there is a solution.
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Most small businesses do not need all of those funds right away. Your business may need a third of the $150,000 now - then smaller portions each quarter until breakeven. The solution, don't try to raise all the funds you need at one time - in one, single, all inclusive loan or investment round. Break it down by time of need. If you really only need $50,000 to get you to the end of the year - only try to raise that $50,000. It is so much easier to raise a smaller amount - less risk to the lender and truthfully less risk to you. Plus, at the lower amount - you will have more lenders willing to listen to your entire deal and not just dismiss you due to the amount you are seeking.
Now, as you launch and move forward, you will of course need additional funds. But, this time, you can either try to raise say another $50,000 or even the remaining $100,000 or whatever amount you need to get you through your current period. This time it will be much easier as you now have experience and results under your business belt. You now have more financial assets like accounts receivables, purchase orders or credit card receipts that can be used for collateral (keep in mind that having collateral means a better deal for you - lower interest and less fees). Also, you have a small track record - a record that will make more lenders take notice of your business. In essence, you have now become more bankable or investable. The idea is that if you don't need it all right now - why try to raise it all right now - you will only price yourself out of finding any funding at all.
Now, let's say you need all of those funds at start-up and you cannot tranche out the funds as suggested above. Then, unless you have substantial collateral - you have two choices:
First, scale back. Maybe you are trying to start too big. Find ways to scale back your opening - and work on growing and improving your business - you can always scale it up later. The goal is to do enough to get your business moving forward. At that point, you have more bankability power and more lenders or investor will be willing to listen.
Second, break down your needs into specific categories - then find lending opportunities or investments for each of those needs. This should be done anytime you are seeking financing for your small business. Here, if you need equipment - look for an equipment lender(s) that work with start-ups, small businesses or in your industry. There are many great companies out there that only focus on lending for business equipment. Plus, you will not only find better deals but will stand a better chance of approval since these loans will be secured by the equipment you are purchasing. This also allows the business owner to seek less unsecured funding for the working capital needs of the business. Less capital (unsecured) needed overall means less risk for the lender - which always results in better approval rates. Further, there are many more lenders - non-bank, non-profit and even traditional lenders - that lend smaller amounts of capital, up to $50,000, to start-up companies and new small businesses - but, ask these same companies for more than their maximum amount and it is an automatic 'no'.
The bottom line is simple - make yourself less of a risk for lenders or investors and you will start hearing more of them say 'yes'. How, by lowering the amount you are requesting - through trancheing your capital inputs, using collateral to secure your loan or investment - particularly the collateral you need to purchase to grow your business to the next level. Plus, if you have a track record - more capital providers will listen. Thus, it is easy to stop all the 'nos' but you have to get creative and be willing to take a bit of risk yourself.
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Tired of hearing 'NO' when seeking funding for your start-up? - Business Money Today