Door # 1? Door # 2? Which way to go?
Too often we see business owners looking for financing and not knowing where to begin.
Well there a few fundamentals many entrepreneurs don’t think about and so are often ill-prepared to support their request for financing.
Where do they start… usually the local bank branch manager where they do business. From there a search may expand to other banks, federal or regional government agencies, and venture capital or angel investing groups.
The real starting place should be a plan. Business owners/managers should be able to first clearly outline a set of objectives. What is the focus of the plan? Have all issues been prioritized? What uses of funding can maximize the return on funds invested?
If the planned use of financing cannot be clearly articulated why should the provider take the risk?
One of the key elements often overlooked by borrowers is the lenders keen interest in understanding the strength of the borrower’s organization. Banks or private lenders want to know who is managing their money; they have little interest in owning a business that defaults on a loan. Therefore step one in the process may be cleaning up you house and strengthening the organization.
Financing through loans vs grants is always an interesting discussion. Too often businesses want and expect a government grant to grow their business. Weak arguments are made about the worth of the project and the interest for governments to throw money at a problem. Governments mainly pursue support programs that will garner political favour and help facilitate re-election.
Private investors look with equally critical eyes at the risk of the venture. These groups want a high multiple return, particularly if risk is high for any potential investment. Some have greater appetites for risk but again the expected return is higher and often the trade-off is the borrower may lose control of the business.
Always remember the GOLDEN RULE.
HE WHO HAS THE GOLD MAKES THE RULES