corporate financing

Generally entrepreneurs must have access to capital at some moment. The good news is, at hand there are scores of distinct business loan programs. Unfortunately, that's also the sorry news. In other words, the capital is out there, however it can be confusing to make your mind up on which business loans to make a claim for, particularly because a lot of business loans support certain things.

As soon as it comes to the financing popularity contest, equity funding is currently in vogue. Stories in the mainstream media as regards venture capital have glamorized the idea of selling stock in your startup, and entrepreneurs across the board would to a large extent favor to create money in the form of equity instead of debt.

corporate financing

Equity is so appealing as it feels like you're in receipt of "free" capital through the startup phase. There are frequently no settlement obligations and no interest payments appointed to equity investors. You will furthermore have some input in negotiating the outlay of your stock, any dividend payments and the status the investor will have in your business. If your business goes belly-up, it is their loss (unless, of course, your investors can confirm in court that you didn't divulge significant info that would have influenced their decision to invest).

In addition to providing funding, equity investors can be supportive in other ways as well. They pass their business knowledge and lessons learned to bear on your business, also they can become a board member. The finest equity investors are those with wisdom in your industry, familiarity launching a business, a cool temperament and deep pockets. Some say choosing an equity investor is similar getting married-you're making yourself held responsible to this individual through thick and thin, so select carefully.

corporate financing

Before you go investor shopping, though, you must fastidiously think about just what you're selling and what having equity investors really means for you and your company. Very few company's will ever be able to provide a decent return on investment (ROI) for equity investors. The mainstream restaurant or retail store, for instance, is not likely to have any liquidity for its shares. And even if you plan to have a high-growth tech business, the possibility of accomplishing liquidity for your early investors is low. You must be truthful with yourself regarding whether your investors expect to be paid back.

corporate financing

What about good, old-fashioned loans?

If the shine of equity capital is marked by the reality of having to produce a respectable ROI, you can fall back on the old familiar friend: a loan. The decent news regarding debt financing is that you are still totally in charge of your business-your single undertaking to your lender is to achieve your payments on time, as spelled out in your promissory note. As long as you do that, your lender has no right to intervene in your business. Interest payments are typically a deductible business expense, and if your lender is someone you know well, you could be able to get helpful reimbursement conditions that can make the loan walk and talk much like an equity investment.

corporate financing

There are several ways to create this flexibility:

• Defer the start date of repayment by adding a "grace period." Startup loans often have a six- to 12-month grace period before repayment starts, providing entrepreneurs with some time to ramp up the business.
• Capitalize interest. Your lender can also capitalize the deferred payments so they don't lose interest funds during the grace period. This allows you to pitch a lender by suggesting a much longer grace period (if you think you'll need more than 12 months).
• Use interest-only payments. If your lender wants to be repaid immediately, offer to make interest-only payments for a period of time to keep your monthly budget in check.
• Institute graduated payments. You can create a unique repayment schedule with low payments at the start of the loan and higher payments at the end when your business is proven.

For lenders who are very cautious about making a loan, you can offer to provide collateral on the loan, such as a lien on your car or home equity. Be careful, though: If your business isn't yet well established, taking on this type of risk too early could be a bad move.

Another solution that some entrepreneurs have used to find a happy middle ground between debt and equity financing is convertible debt, which is simply debt that converts to equity as the business grows.

corporate financing

In order to demonstrate that you are worth the money, you�ll want to prepare some documentation. First, your personal credit history is relevant to your small business loan � especially if your business does not have a long operating history. They will assume that you operate your business in the same manner that you manage your personal finances. Bring your credit history with you to reference as necessary.

Next, bring financial statements for your business. You’ll need to show your business’s financial health. They want to know how much it’s worth and how much money you’re moving. If you’re serious about small business loans, then you’ll also want to prepare detailed pro-forma statements. These give projections about what your business will be worth going forward.

Finally, be sure you have an updated business plan. By preparing a detailed business plan, you’ll already have your financial statements and pro-formas prepared. Banks award small business loans to those that have everything spelled out and planned. I strongly suggest that you prepare a plan with as much detail as possible – including bios of you and your partners, your track record, your strategies and advantages, and more.

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