Suggestion for an Entrepreneur Looking for Funding

[speechlady]

I am new to this forum but have been actively assisting my husband with his cash flow business for a number of months. One issue that I have seen that often occurs from those looking for funding is the lack of paper work that is needed when a funding request is presented. It is so vitally important for an Entrepreneur to have their paper work up to date (business plans, executive summary) before they look for funding. In addition, it is so vitally important to keep in touch with the funding source to expediate their funding project.

[robertj]

[quote="speechlady"]I am new to this forum but have been actively assisting my husband with his cash flow business for a number of months. One issue that I have seen that often occurs from those looking for funding is the lack of paper work that is needed when a funding request is presented. It is so vitally important for an Entrepreneur to have their paper work up to date (business plans, executive summary) before they look for funding. In addition, it is so vitally important to keep in touch with the funding source to expediate their funding project.[/quote]

I agree with speechlady - and would like to add the following:

It's important for you and your company to be "capital ready".

[speechlady]

In addition to capital, it is important that the individual who is requesting funding, consider any assets that they may have which may allow for a "better type of funding" to help with their projects.

[Evan]

Here's another suggestion from my experience - make sure your company is set up as a corporation. If you're going for angel or VC financing, they will become equity owners in your business. For this to happen you need to have a corporation and a shareholder's agreement.

I've seen a lot of deals fall apart because the business was not ready with their corporation. They were sole proprietorships and had not given any consideration to a shareholder's agreement.

It makes you look like unprofessional and can seriously detract from your capital raising initiatives.

[robertj]

[quote="Evan"]Here's another suggestion from my experience - make sure your company is set up as a corporation. If you're going for angel or VC financing, they will become equity owners in your business. For this to happen you need to have a corporation and a shareholder's agreement.

I've seen a lot of deals fall apart because the business was not ready with their corporation. They were sole proprietorships and had not given any consideration to a shareholder's agreement.

It makes you look like unprofessional and can seriously detract from your capital raising initiatives.[/quote]

I agree that one major step in being "capital ready" is to create a separate entity. In the US that traditionally means forming a Coproration, although the LLC approach is becoming a viable option.

However, just being a Corporation (or LLC) doesn't mean you are Capital Ready.

[dcranson]

I agree with all of the above suggestions, and just wanted to add the following:

investors/lenders will want to see a developed business plan with cash flow projections that contain:
- how much $ you need
- when and where the $$ will be spent
- future capital needs (don't be niave to think that the first round is the only round)
- return on investement (don't let your passion get you carried away from realistic numbers)

It helps to work with a professional who has experience raising capital.

[robertj]

In the US, providing projections of returns for an equity investor can be very problematic.

I would also mention that unless you are dealing directly with the venture capital firms – a business plan (while necessary) is not the best tool for dealing with private investors.

Working with a professional is a definite help – but be sure to check them out and be very clear about what you will be getting. Be very careful with those who say they can raise capital for you.

[Nana]

The best way to convince a bank for a loan is to convince them that you don't actually need it. Haha, it's a joke that I read in a book earlier today.

[speechlady]

I may have mentioned this previously, but one item that I have seen not to be included when asking for any type of funding is listing assets. Often times, an individual will ask for a type of funding and will neglect to list any assets/collateral that they have to complete the funding process.

[litekepr]

I may have mentioned this previously, but one item that I have seen not to be included when asking for any type of funding is listing assets. Often times, an individual will ask for a type of funding and will neglect to list any assets/collateral that they have to complete the funding process.

This is very true. I've seen a list of assets be enough to swing the lender's decision. And, this doesn't have to be property, stocks etc. Most loan applications I've completed give you a fairly thorough form to list your assets, but if you have something else that you feel is worth money, it doesn't hurt to make a list and explain the value. All the person can do is refuse to use those assets.

Shri

[TSBG]

In addition to capital, it is important that the individual who is requesting funding, consider any assets that they may have which may allow for a "better type of funding" to help with their projects.

While I agree with the business plan information, I do not agree with the above statement, because although a person may be able to secure a better rate with (say) a home equity loan, they are not building a track record for future use with a business lender and that is not beneficial. (Especially if you are a franchisee as most franchisees open more than one unit) and therefore stand to benefit more from building a relationship with a business loan lender from the get go (but this advise definately holds true for anyone going into business. In addition, should you need working capital now or in the future, you may not have enough home equity to support that too. Lenders do not typically approve working capital loans when you finance the business via personal funds.

[litekepr]

In addition to capital, it is important that the individual who is requesting funding, consider any assets that they may have which may allow for a "better type of funding" to help with their projects.

While I agree with the business plan information, I do not agree with the above statement, because although a person may be able to secure a better rate with (say) a home equity loan, they are not building a track record for future use with a business lender and that is not beneficial. (Especially if you are a franchisee as most franchisees open more than one unit) and therefore stand to benefit more from building a relationship with a business loan lender from the get go (but this advise definately holds true for anyone going into business. In addition, should you need working capital now or in the future, you may not have enough home equity to support that too. Lenders do not typically approve working capital loans when you finance the business via personal funds.

The loan I mentioned that we secured by getting a bit creative with the assets list - was a business lender and it worked great. We have since paid off the loan and recently my partner wanted to borrow more money and the approval etc took about 15 minutes and he had a check in hand.

Shri

[TSBG]

Oh Shri i'm sorry-

I misunderstood. I thought you meant obtaining financing (other than business lending) because when you said...

"consider any assets that they may have which may allow for a better type of funding"

I thought you meant like a home equity loan or something that may provide a better type of loan- in other words a loan from that asset as opposed to a business loan.

My apologies.

[David Castro]

A business plan is a must if you want to get any real investors into it. As there are several types of lenders you will find different types of requirements and conditions. Those will greatly vary depending on:

-Your credit history
-Your personal assets.
-Your past/current business experiences
-Amount needed
-Funding type: secured or unsecured.

And make sure you can afford the payback!

[BizLoanz4u]

Hi Speechlady,

I so agree. As someone who is in the financing industry, I can concur that ALL paperwork must be up to date and ready to go in order to expadite a loan. This means personal AND business paperwork. Like personal financial statements, 2 - 3 years personal tax returns, copies of W2's or other proof of current income, mortgage and bank statements, a copy of your current credit report, copies of your drivers license, your business plan, 2- 3 year projections, business tax returns (for an acquisition - which is the purchase of an already existing business ), you will also need a letter of intent (for an acquisition), lease agreement, a purchase agreement (for franchise start-ups), a copy of the UFOC (franchise), a licensee agreement...etc. Depending upon the lending institution and the type of loan, the list can go on.

A loan moves along so much faster when all the information is ready and up to date.

Here's a good tip- Don't wait for your lending institution or loan broker to request the info either...it's inevitable that they will (eventually). Upon initial contact YOU should immediately request a loan application and a checklist of the information you have to get them, and then overnight them a package with EVERYTHING. Don't wait for them to ask...YOU initiate and take charge to expedite the process or they will take their sweet time (it's one of the things I hate about some companies) they delay things when they don't MOVE fast and it's really not necessary. Also, if you are purchasing an acquisition, you should request a checklist of the information the seller needs to get together as well.