This chapter helps your writing process because it gives you an idea of what lenders and investors want to see in a finished plan. Your ability to understand your financiers’ motives can mean the difference between getting a loan or investment and coming up empty-handed. If you already have financial backing, you can skip this chapter
Return on Equity Investments: What’s Fair
Every investor has her personal requirements and every deal is different. The important thing is that both parties understand the risks and think it is a good deal. Here are some suggestions that have worked well for others in situations where the potential investors weren’t well acquainted with the entrepreneur. Obviously, if your investors are family members, close friends, or people who wish to support your business for political or personal reasons, they may be willing to accept a lower rate of return.
Accounts Receivable Factoring Companies
Factoring companies also called factors buy your accounts receivable at a discount. Then, they collect your accounts at full face value. This can be a very expensive way to raise cash I only recommend it as a last resort. Some factors require that your accounts pay them directly instead. of paying you. This can cause problems with customers, who’ll assume that you are having serious cash flow problems. Approach factors with caution and make sure you understand the implications of the agreement before you sign it
If No One Will Finance Your Business, Try Again
Let’s say that you’ve been unsuccessful in your attempts to raise money for your business from the primary sources listed above, or you have raised some money, but still need more. What do you do next? The first step is to go back to the people who initially seemed interested but ultimately
turned you down and find out why. This is not a waste of time. If you get the same answer from several people, you will know what you have to work on. And then there is the possibility that someone’s circumstances have changed and they have more funds now. Remember, it took the man who invented dry paper copying 21 years to raise the money to get the first photocopier made.
Secondary Sources of Financing for Start-Ups or Expansions
Let’s assume you have tried all of the primary sources of financing small businesses at least twice, and have been turned down each time. Is it time to head for the showers? Not if you really want to start your business. If everyone turns you down, you have no choice but to get creative. Remember Knute Rockne’s exhortation, “Winners never quit and quitters never win.” Here are some suggestions.
Small Business Administration
Many years ago Congress recognized both that small businesses provide most of the employment and growth in the country and that they have a great deal of trouble borrowing money because large corporations tend to hog too much of the loan money from banks. As a result, Congress created the Small Business Administration (SBA) and several other government organizations specifically to help small businesses compete with larger corporations for loans.