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There may have been times when as an early stage entrepreneur or someone who wanted to start a business, but hadn’t, you’ve felt the need for some capital to help you get going. It may surprise you to learn this, but you’re in good company. Many people in various stages of their businesses have felt this way.

There are five standard ways in which businesses obtain the funding they need. In the recommended order, they are 1) Family, 2) Friends; 3) Banks; 4) Business Angels; and 5) Venture Capitalists. All of them share certain characteristics to a greater or lesser extent.

First, they’ll want to understand your business plan. That is, they’ll want you to convince them that if they invest with you, their money will be spent carefully and only on necessities; not frivolities such as new equipment or cars that could all be obtained second hand. Some will even object to funding your salary!

Families and friends probably won’t need a plan that’s as detailed as that which a bank or venture capitalist might want.

Second, they’ll want to minimize their risk, sometimes referred to as exposure. Some won’t expect anything from you except your promise that you’ll do everything thing you can to preserve what they’ve given you. Others will expect you to mortgage yourself to the hilt so that you will think twice about pulling out if things don’t work out as you had planned.

Third, they’ll want a return on their investment. The word Invest implies that the amount you’ve been loaned will grow beyond its current size. Friends and family will probably accept less over a longer period of time than the others. Venture capitalists can expect a fifty percent or more return on top of the loan within a few years. That’s one reason why investments by them aren’t made nearly as often as the other four.

Fourth, they’ll want an attractive exit strategy. That means that they’ll want to limit the time during which you will have their money. They’ll want you to pay back the loan with the extra they have earned in a reasonable amount of time. Some will be satisfied with that; others will want a seat on the board or even a share of the business. In that case, they’ll want to receive a percentage of the profits over and above their investment for a certain period after the investment has been made. The length of time they decide to retain their share will vary from investor to investor.… Read More

It has become a routine occurrence for small business owners to be told by their current commercial lender that it will be necessary to seek another source for commercial loans and working capital. Although banks and other business lenders have made a pointed effort to portray themselves as lending normally, very few business owners are likely to agree that there is anything normal about obtaining financing from current business finance programs.

Because current commercial lending conditions have become so difficult, I published several earlier articles which addressed some of the problems that commercial borrowers are experiencing when they attempt to obtain working capital financing and commercial loans. For example, one of these commercial finance reports described the unfortunate possibility of firing your banker as one of several guerrilla financing techniques that might be required for a small business to survive in the face of extreme business banking conditions.

Certainly I would not advocate the guerrilla financing tactic of firing your bank and your banker if there were not suitable alternative sources for small business loans. At the same time, it would not be realistic to suggest that there are one or two obvious business lending sources that will solve the working capital needs for all businesses in need of help.

In reality the search for new commercial lending sources must start with an admission from a small business owner that they do in fact need to find a new source for commercial loans. Identifying the most likely alternatives can be accomplished in several ways but one of the most effective approaches will include detailed discussions with commercial loans experts that are experienced in nationwide business financing similar to what the business owner currently needs.

The best commercial finance solutions will depend on the business location, type of financing, kind of business, operating history and size of loan desired. Some of the most realistic sources for small business loans are operating regionally rather than nationally. A key point for business owners to remember is that there really are a number of viable and effective commercial lenders that are currently active in making commercial loans to businesses that are in desperate need of commercial financing.

In addition to the advice contained in this article, small business owners should not hesitate to review business finance resources such as The Working Capital Guide, a free online publication which focuses on working capital management strategies. Additionally commercial borrowers should quickly locate a commercial loans expert that is capable of providing appropriate help for their specific business financing situation.… Read More