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Where To Go For Financing Your Small Business - Part 2

Paul Wimer
Paul Wimer

By Paul Wimer

Evaluate your potential sources for borrowing:

• Best to start with a loan from family and friends... potentially the best terms. Make sure to treat them like the bank, creating documents with defined terms and expectations. Keep this relationship professional; you must live with these investors for the rest of your life.

• The next stop would be a loan from your local banker. With a reasonable credit rating can get you a few hundred thousand dollars, however it might require a personal guarantee. If you have to give a personal guarantee, think HELOC or mortgage, to maximize the dollars that you can borrow

• Investigate other lending sources as your business grows – asset based lenders who lend against your inventory or receivables, leasing companies against equipment and machinery, vendor financing of your purchases

If you're business requires lots of investment before marking its first sale, then you need to find an equity partner.

• Once again, start with your family and friends, only now they will be buying a part of your business. Define how much you need to raise, a fair valuation for your business, then exchange the resulting percentage to your new partners for needed cash. Always the best way to get started in business, you are leveraging folks that know you and trust you. By far the best terms, usually preferential treatment.

• Find an angel or an early stage venture capitalist. Angels are typically successful business people who are interested in backing entrepreneurs in industries where the angel is familiar. Angels are will invest from small amounts $50,000 - $250,000 to much larger amounts. You can find individual angel investors or angel funds. Make sure to find one that understands and buys into your vision, as well as complements your personality - you will be working closely together so the relationship has to be effective.

Turn to your local business associations, lawyers, accountants who will likely be connected into these networks.

• Venture capital funds - go the National Venture Capital Association site (www.nvca.com) to learn about these types of funds. Again use your favorite search tool where you can find information on the wide breadth of funds available, research your industry to see who has funded other companies - most funds have some industry focus or bias. Expect to spend significant amounts of time with these investors as they want to learn about you and your management team and the business that you are building.

Most of all, plan on spending a significant amount of time with potential investors raising the capital you will need to get your business going. Even if you are planning on bankrolling the business for some period of time, most fund raising processes take 3-9 months from start to finish. Big trap for new businesses is not allocating enough time from business building activities to raise the capital necessary to fuel the business.

Go to www.Trumpuniversity.com/bigidea for more information on getting your business off to the right start.

Questions? Comments? BigIdeaCES@CNBC.com