Restaurants, hair salons, artists, jewelry experts, designer clothing shops, veterinarians, accountants, lawyers, shoe repairs, tattoos, live music, bicycles, running and fitness, printers, travel agents, sunglasses, tuxedos, interior design, event planning…the list goes on and on. Somewhere along the way, all of these businesses were just an idea in somebody’s head. That entrepreneur turned an idea into a reality. They went through the process of determining what they needed to be successful. At some point, they needed start up capital to get things going. It is essential to success that you get the capital you need and feel positive about where it has come from. A few tips gleaned from an article I found in Bloomberg Business from January 2007 by Christine Comaford-Lynch are right on target (www.businessweek.com/print…)
How much money is enough? You want to have enough to keep the company running and also be able to hit specific milestones, showing increased value in time for your next round of capital raising.
When to raise the capital? It will depend on where it is coming from. You need to know what timeframes to expect and recognize that the process of finding (and being approved for) funding almost always takes longer than expected, so add cushion into your financing plan.
Bank loans, especially in our new lending environment, can take 4-6 months or as little as 2-3 months if you have an excellent banking relationship already established. You also better have a nearly perfect credit history before you start down the path to traditional bank loans. If you are thinking of being operational in 2 years, and you need to tidy up your credit history, take actions immediately to become more credit worthy. Check out this site to find out a few simple steps that can make a large difference.
http://www.ehow.com/how_7441749_improve-credit-llc.htmlGovernment backed SBA loans can take some of the credit history burden off of you, if you qualify, the SBA is able to back some applicants who might be on the edge of qualifiying for a small business loan. This program was boosted by the Small Business Jobs Act, signed by President Obama on September 27, 2010, in an effort to get small businesses back on track. Read more about SBA loans here:
http://www.sba.gov/category/navigation-structure/loans-grants/small-business-loans/sba-loan-programs/sba-loan-queueIf you’re looking for Angel or Venture Capital, your lag time can vary widely between 3 to 12 months, and most granting agencies/organizations will take a year to review and approve your application.
Ideally you should start the process of raising capital 6 to 9 months before you will need it. Again, ideally, you’ll also need to plan your outreach at or around times that you are hitting your milestones, as you will seem like less of a risk when you can show potential profits ro objectives being met in the near future.
Choosing whom to work with is the most important aspect of your capital raising campaign. You will be working with this person or organization for years, make sure you respect them and feel comfortable communicating with them.
Will your investor be an active or passive participant in the process? Active money will work closely with you, potentially introducing you to sales prospects and expecting a say in how you execute your business plan. Passive investors will not require time-consuming directives and will leave you entirely in charge (and responsible) for success.
Take the time you need to adequatly evaluate where your financing will be coming from and what the details mean to you in your plan. You will want to understand exactly what is expected of you upfront, so that you are not surprised once you have accepted your lenders terms and conditions. This can enable you to develop long standing professional lending relationships that could allow you to persue even larger ideas that you have not even imagined yet.
