Cash is the life blood of any business, large or small. Like an elite athlete requiring a gulp of oxygen to finish the drill, most businesses need outside sources of cash for top performance – to purchase equipment, enter new markets, or meet payroll.
If you need cash to start or grow, what are the options?
Equity investment is money put into the business in exchange for an ownership share. Owners have the riskiest position – they are the first money in and the last to get paid if a business fails. But they also have the greatest up-side if the business is successful. Risk and reward are the foundation of investment, and the more risky the business, the more expensive the financing.
The founder’s personal savings, family and friends are the first sources of equity. (If you and those closest to you don’t believe in the idea, who will?) Private equity investors, often referred to as “angels” are also an option. Preparation and negotiating skill are needed to find an angel investor and then reach an agreement you can live with.
Debt financing is another option. Banks and nonbank commercial lenders are in business to lend money, but they are more risk averse than equity investors. Too much risk means “no deal.”
A business owner with some cash, a solid track record, a good business plan, strong personal credit, and significant assets for collateral will get a cordial reception from a lender. If one or more of these areas is weak, debt may not be an option.
The real secret to finding money is to do your homework, prepare a great proposal and find a source that fits your needs. A solid financing proposal describes your plan for the business, addresses potential risks, and shows the potential payoff for investors or lenders.
A great resource in your search for growth capital is the UGA SBDC. Expert consultants in 17 offices around the state help business owners tell their story to lenders and investors. Through our assistance in identifying financing sources and developing effective proposals, the SBDC helped Georgia small businesses raise over $100 million in 2014.
We will help you determine how much money your company needs to meet its goals and the best financial instrument – loans, equity or both – to fit the bill.
We use powerful financial tools to analyze your current situation and help you forecast future revenues and expenses. This analysis is a great way to see if your business can pay back a proposed loan or meet the rate of return investors will require.
Besides our financial expertise, we have strong ties to the lending community. We know the types of business loans they want to make and what information the loan officers need to make a decision.
SBDC consultants can help you craft a compelling story about your company that will pique the interest of your new financial partners. Contact your local SBDC.