The truth of the matter is that the ability to raise funds for your business venture is directly related to the experience and credibility of the management team and at which particular stage of development their business is currently in.

Most entrepreneurs don’t seem to get a handle on this important issue until it is far too late in the game. They wake up and smell the coffee at the last minute struggling to get their finances in order and by then, it’s just too late. They have most likely moved the business forward by robbing Peter to pay Paul undoubtedly jeopardizing their financial condition and the ability to raise funds for the future.

Before you decide on the amount of financing you will request from a lender, you should refer to your most recently updated business plan in order to help you determine your current capital needs. When reviewing this plan ask yourself the following questions:

Goals - Where do you want your business to go? What are the specific objectives for both yourself and the business? Where do you want it to be in three years? In five? Always start with your optimum strategy. How much growth are you prepared to handle? Consider all pertinent factors and then decide upon the level of growth in which you will feel reasonable comfortable.

Resources - When evaluating resources always consider the current available resources at hand and ask yourself what support is essential to realize this specific growth strategy? Ask your employees to develop a "wish list" that includes everything they will need to reach the next milestone. Remember to consider time, money, human resources, physical locations, inventory, research, technologies and equipment when assembling this profile.

Expertise - What expertise and personnel will you need to advance your business? Will you need to bring in outside consultants and advisors to move you to the next level? It’s always a great idea to visit with your business banker and ask for a list of resources they might recommend regarding this issue. This will alert them to the fact that you are formulating strategies for financing your business and set the stage them to get involved in the project. You can also visit with other experienced business owners within your community and ask them how they have financed similar growth initiatives.

Current Financial Condition - When reviewing the financial section of your business plan, you will ultimately obtain a clear analysis of your business strategy and your current capital needs. You must create a current cash-flow projection and forecast your anticipated revenues in order to get an accurate read.

Now that you have determined the specific amount of capital needed to achieve your desired goals and initiatives, there are two basic types of capital: equity and debt.

Equity Financing: may come from a variety of different sources including personal savings of the owner, investment from partners or by selling stock in a large corporation. In most cases, equity capital comes from the personal savings of the owner or through funds borrowed from friends or family of the owner.

Most financial institutions will not loan money to a new business unless the equity position of the owner is at least one-half to two-thirds of the total investment. In the case of the Small Business Administration however, they may guarantee a loan to the business owner with as little as one-third down providing it is a viable business idea properly "packaged" with formal written business plan.

If you don’t have sufficient capital to launch your venture, you may consider taking on a partner or offering stock to investors. In either case, you’ll lose some degree of control over the business and must be assured that you will have enough profit to sustain your personal needs.

Debt Financing: is available to today’s small business owner in a variety of ways. Debt financing occurs when monies are borrowed from an individual or an organization for a set fee. This fee is usually paid in the form of tax-deductible interest. The payback of both principal and interest is typically made in fixed regularly scheduled amounts.

You do not have to give up any ownership in your business to secure debt financing, but keep in mind that most financial institutions will require a considerable amount of collateral to secure the loan. More often than not, you will have to secure these funds in the form of a personal guarantee that may include your personal property as collateral.

Where conduct your business banking is extremely important to the ongoing operations of your business. The specific practices and policies a bank will make a great deal of difference in how secure you may feel as a small business owner.

Banks and other lending institutions survive and thrive by building in capacity and adding to their existing customer base. A progressive bank will be eager to have you as a new customer if you have a viable business idea and you’ve done your homework.

Ask local attorneys, accountants and other business professionals for their insights and recommendations. Take the time to ask specific questions regarding the banks your are considering and their commitment to the small business community.

It is imperative that you take the time to find the right bank and a personal banker that believes in both you and your business venture. Keep in mind, the general public chooses a bank for conveniences such as its’ location, it’s free checking or an after hours drop-off box for deposits. Although these conveniences and other customer service benefits are important, they should not be your main reasons for choosing a financial institution.

• What are the banks policies regarding small businesses?

• What percentage of the banks funds are loaned to small businesses like your own?

• How will they work with you to help you grow your business?

• What would happen in the event of unforeseen financial difficulties?

• What is the specific background of the personal banker assigned to your account?

• What kind of personal attention will you get in developing your business?

• Will they expose you to their network of strategic alliances and key partners?

• How accessible are they willing to be to help you grow your business?

Applying for Your Loan...

By nature, bankers are analytical. The more information you can present regarding yourself, your business and the specific industry that surrounds it , the more likely they are to work with you to make yours a successful business endeavor. In many cases, the loan officer will weigh numerous factors prior

to approving to the your loan. Here are a few things to consider when positioning yourself and your business for conventional loan:

Capital is the money that you have personally invested in the business and is an indication of how much you have at risk should the business fail. Most prospective lenders and investors will expect you to have undertaken a considerable amount yourself before expecting them to commit to any funding.

Character is the general impression you make on the potential investor or lender. They will from a subjective opinion as to whether or not you are trustworthy to repay the loan and generate a sufficient return on the monies invested in your company. Your educational background will be reviewed as well as your personal references and business experience.

Collateral can be any additional form of security or guarantee you may provide to your lender. Giving a lender collateral means that you are pledging an asset that you currently own (such as your home) to the lender with the agreement that it shall become the source of repayment should you become unable to repay the loan. A guarantee, on the other hand, is just what it implies -someone else signs a document and promises to repay the loan in the event you can’t or don’t. Some lenders may even require a personal guarantee in addition to collateral.

Conditions focus specifically on the intended purpose of the business loan. Your lender will consider the current and local economic conditions that surround your industry and other industries that may be directly related to your business. They will also look at the specific use of the funds. Will these funds be used for working capital, additional equipment, promotion of the business or equipment?

Capacity to repay the loan is the most critical of these five factors. Your lender will need to know how exactly you intend on repaying the loan. They will consider your business’ cash flow, the repayment schedule and the probability of successful repayment of the loan. These prospective lenders will also be very interested in your contingent sources of repayment in the event that thing don’t go as planned.

Once you have been approved for your loan, it is a good idea to keep good lines of communication with your lender. If you have selected your bank properly, they will be interested in how you are doing and track your progress accordingly.

It’s always a good idea to supply your lender with quarterly financial statements to keep them in the loop. You can also keep put them on your general mailing list to keep them abreast of what’s happening in you business. You will generally find that if you keep in touch with them during good times, they will be more than willing to help you during difficult times. Treat them as if they were a partner in your business and remember, no one likes unpleasant surprize - especially a banker.

By now, I hope you have a better understanding of how to partner with your lender to get the money that makes it all go. The following roster includes a variety of ways other small business owners have financed their new business ventures. Keep in mind that is well within reason to create combinations to get the capital needed to turn your entrepreneurial dreams into realities. SPH

Commercial Banks: Although primarily a source of short-term loans, are another source of financing for small businesses. Many banks tend to be rather conservative in their lending policies , however, some banks are more liberal than others. Establishing a solid working relationship with a personal banker in one of your area’s more liberal banking institutions is a good move for any entrepreneur.

Some commercial banks have special departments to evaluate loans to smaller firms with good growth potential. If you have access to such an institution, you may find that they are more than willing to give special consideration to the small business owner. Most banks will differ in the degree of specialization services they provide. It is advisable to look for a bank that caters to small business needs.

Savings and Loans: Federal Banking laws were amended by Congress in 1982 and again in 1989. The most recent amendments allow Savings and Loans to invest up to 10% of their total assets in business loans. Federally chartered organizations can also invest a certain percentage of their assets into financing equipment and inventory or commercial real estate lending.

Credit Unions: Banking regulations also apply to Credit Unions. These organizations are allowed to lend a maximum of $75,000 or twenty- percent of their reserves and undivided earnings (whichever is greater) to any individual member. If a Credit Union’s reserve is $1.5 million dollars, it can loan any one member up to $300,000. Banking regulations do not specify the total amount of collective business loans, yet credit unions are not as active in small Buenos lending as other financial institutions.

Minority Credit Unions: The majority of loans from these organizations average around twenty-thousand dollars per loan. These organizations were originally formed in the mid- 1940’s when the black community combined it’s voice to establish institutions which focused on their specific needs. Today, in many states’ Minority Credit Unions gather their capital reserves from the State budget.

Finance Companies: The primary difference between banks and finance companies lies in the specific guidelines they use to evaluate potential borrowers and the amount of risk they are willing to assume. Finance companies generally charge higher interest rates to offset the fact that they are more tolerant of risk than banks. Finance companies are also beginning to focus more on the asset base of the borrower than on operating and cash-flow history.

Factors: A factor is a certified professional who lends money to the owner of a business and secures that loan through using the owners’ accounts receivable. In many instances, the factor actually takes ownership of the receivables and subsequent responsibility for collecting receivables while advancing immediate cash to the business owner. Factoring can be rather expensive and factors are less regulated than financial institutions so I would recommend interviewing a variety of factors prior to signing any formal agreements.

Private Investors: Friends, family or wealthy individual investors are all sources of capital for your business venture. The overwhelming majority of small businesses are started through the use of personal funds combined with investments from individuals. Entrepreneurial clubs in your community will have a list of potential investors in your area.

Additionally, an established attorney or accountant will have access to a variety of individual who may be interested in investing in your business. Keep in mind that the Securities and Exchange Commission has issued strict guidelines regarding the solicitation of private investments. If you do intend to approach people outside of your immediate circle of family and friends, you seek the appropriate legal council first.

Venture Capital Companies: When dealing with a Venture Capital Company, you should first understand that they will become your banker, your partner and to some degree, your boss...You can expect that controlling interest will be requested along with significant returns for the first several years. These organizations typically invest in new, high growth firms. Many venture capital groups will only invest in technologically related or rapid growth industries.

Venture Capitalists often invest in phases. Early-stage financing covers research, development and the production of initial prototypes. Average investments from Venture Capital Companies can range anywhere from $500,000 to millions of dollars. If you are interested in working with a Venture Capital Company, you may conduct additional research by reading Pratt’s Guide to Venture Capital Sources.

Joint Ventures and Partnerships: If you are "cash-poor" in your initial stages of development, you may be forced into a joint business venture, however, you will be much better off in the long-run if you can keep from giving part of the business away.

Keep in mind when choosing a business partner that you should select them for the both resources and expertise that the will bring to the table. It is also imperative that you consult with your attorney prior to engaging a partner to set up the appropriate buy-sell agreements and protect your business interests.

Remember! partnerships are much like marriages and you should have an accurate understanding of your partner’s specific strengths, weaknesses and personality traits before legally formalizing the agreement.

Small Business Administration: The SBA is the primary advocate of small business within the federal government. Although it provides a variety of services to the small business community, the SBA is best know for its small business loan guarantees. Through these guarantee programs, the SBA provides access to financing for small business that could not be obtained through normal lending channels.

Commercial lenders are generally reluctant to make loans to business owners who do not have sufficient collateral, require longer than normal repayment terms or have been not been in business for very long. Each of these factors significantly increases the perceived risk of non-payment and often results in a rejected loan request. Rather than rejecting the loan request, the lender can ask the SBA to guarantee up to 80 percent of the loan amount thus reducing the risk of non-payment by the borrower.

Participation in the SBA guaranteed loan program adds a new layer of activity to the process and consequently lengthens the application process. In order to stream line the process you may apply for your SBA loan through the Preferred Lender Program.

Lenders who participate in the Preferred Lender Program can accelerate the processing time required by the SBA by performing a credit analysis and of the applicant and ensuring the credit application is complete. Because the SBA relies heavily on the information provided by the certified lender, they can decide on a guarantee request in as little as three days compared to several weeks of processing time for normal requests.

SBA guarantee loans are made by a variety of banks, credit unions, economic development groups and other non-bank institutions. For a complete list of Preferred Lenders in your area you may call or visit your local SBA district office.

7A Loan Program: The 7A programs provides funds to existing or beginning businesses for almost any legitimate business purpose, such as land, construction, machinery, equipment, working capital, inventory,etc. Under this program, participating lenders provide the funds and the SBA guarantees a portion of the loan.

Guarantees can reach a maximum of 80 percent of loans up to $100,000 and 75 percent of loans over that amount. The interest is negotiated between the lender and the small business owner with an upper limit that is set by the SBA. There is no maximum loan amount, but the SBA’s exposure is limited to $750,000.

LowDoc (low documentation):The LowDoc program streamlines the loan application process for guaranteed loans under $100,000. The approval process focuses on character, credit and the overall experience of the business owner. Under LowDoc, the SBA can guarantee up to 80 percent of a loan made by a commercial lender to an existing business, a business purchase or a business start-up.

The LowDoc application form includes the single page application, the applicant’s income tax returns from the previous three years and personal financial statements from all other guarantors and co-owners of the business.

Caplines Loan Program: CapLines is an umbrella lending program that helps small business owners meet their short-term and cyclical working-capital needs. There are five distinct programs under CapLines. They include: Seasonal Line, Contract Line, Builder’s Line, Standard Asset-Based Line and Small Asset-Based Line. The maximum amount of SBA’s guarantee cannot exceed $750,000 or 75% of the amount needed whichever is less. Applicants must meet the same eligibility criteria as any other SBA 7(a) business loan.

504 Certified Development Loan Program: The 504 loan program provides long-term fixed rate financing at reasonable rates for businesses needing to build or acquire industrial or commercial buildings or buy machinery and equipment. A lender provides at least 50 percent of the financing in return for a first mortgage, up to 40 percent is funded by a debenture guaranteed by the SBA, and 10 percent is contributed to the business. The limit on the SBA guarantee is set at $1 million dollars. This program can finance projects ranging from $100,000 to $2.5 million or more. Community-based certified development companies package and service these loans.

MicroLoan Program: The MicroLoan Program is designed for start-up and existing small businesses and home-based businesses that need relatively small loans to: purchase equipment, machinery, fixtures and leasehold improvements; finance increased receivables; and provide working capital.

Lending decisions under the MicroLoan Program are made primarily on the basis of credit history and the personal character of the applicant. Loans must be adequately secured, usually by business or personal assets, but loans are not necessarily declined if inadequate collateral is the only unfavorable factor. The written personal guarantee of all other principals is generally required under the MicroLoan Program..

Export Working Capital Program: Under the Export Working Capital Program, the SBA guarantees short-term working capital loans made by participating lenders to exporters. These loans finance either a single transaction or a series of transactions. Funding is provided for the acquisition and production of goods and services being exported or accounts receivable of such foreign trades. The SBA can guarantee up to 90 percent of the loan amount with a limit of $750,000.

International Trade Assistance and Loan Program: Information, advice and export financing help is available through the various resources at the SBA to prepare businesses to take advantage of the new world market. The SBA’s international trade loan program can guarantee up to $1.25 million, less the amount of SBA’s guaranteed portion of other loans outstanding to the borrower under the SBA’s regular lending program. Specialized counseling is available through the International Trade Administration.

Department of Economic Development: Traditionally, most states have invested their majority of economic development funds into programs designed to establish and maintain manufacturing and industrial companies. However, as the role of the primary employer has shifted from the large manufacturing companies to individual or technology-oriented businesses, so has the focus of economic development funds.

Industrial Revenue Bonds: These bonds are used to create low-interest, long-term financing and are used primarily by manufacturing firms to purchase fixed assets. Additionally, a company must demonstrate and commit to hiring a specific group of people at a particular wage in order to become eligible for these types of funds.

Job Creation Tax Credits: These credits are available in many different states for business owners who create permanent, full time jobs for persons in economically distresses areas. Time frames for extending credits and particular rates of credit will vary from state to state, so check with your local accountant for rules and regulations that may apply to your specific geographic area.

Investment Tax Credits: ITC’s are often given for investing in qualified business ventures within your particular state. There is typically however, a cap on the amount of investment credits allowed for the entire state and many times we see larger companies take on the lion’s share of these credits. These can be somewhat complicated but can possibly benefit you in the long run by offsetting your tax burden through the initial upfront investment in your business.

Small Business Loan Programs: These programs are often funded at the State level through receipt of Federal Community Development block grants. These programs generally focus on low and medium income earners with less than twenty employees and sales under one million dollars. Ask your local economic development council for information regarding these programs.

Small Business Incubators: Hundreds of Small Business Incubators have been formed across to give entrepreneurs the resources needed to become successful. Incubators are business assistance programs targeted to support start-up and fledgling entrepreneurial firms and are proven tools for encouraging technology transfer, revitalizing communities and creating new jobs.

Most incubators offer their small business clients financial and professional assistance that typically includes flexible space and leases; orchestrated exposure to a network of business and technical consultants that often provide legal, accounting and marketing advice, networking opportunities and key relationships with financial institutions. For additional information regarding the business incubator concept, you may call the National Business Incubation Association at: 614-593-4331.

Entrepreneurial Councils: Many communities have established entrepreneurial councils to help small business owners improve their overall management skills, access information and network with other business owners. Many of these councils sponsor an annual venture capital conference to assist entrepreneurs in gathering the capital needed to advance their entrepreneurial endeavor.

One of the largest entrepreneurial councils in the entire country is located in North Carolina’s Raleigh- Durham based Research Triangle Park. This group provides an annual opportunity for growth companies to present their business concepts to an audience of potential investors for the purpose of soliciting working capital. You can contact this particular council at 919-460-3845. They will most likely be able to supply you with a list of entrepreneurial councils in your own area.

Lending Consortiums: Often we will see smaller, regional banks join together to contribute to a fund that has been established for the purpose of creating jobs and opportunities in designated areas of the State. These are called lending consortiums. Consortiums typically pool their resources to allow banks to make small business loan that do not meet conventional lending standards. This "pooling" process allows banks to distribute losses equally and contribute to their CRA (community re-investment act) requirements. You can check with your State Banking Commission or local Economic Development Group regarding lending consortiums in your immediate area.