Before deciding on a financing option for your small business, it important to do a substantial amount of research and be prepared with a comprehensive business plan, which should be achievable and compelling. Potential investors and lenders will want to know the details of several major components of the business plan. The following questions are very important to them:
- How are you going to spend their money?
- How are you going to attract new customers?
- What will be their return on investment (ROI)?
- What will be the payback period?
The business plan is critical to obtaining financing, but it will not stand on its own. Investors and lenders are putting their trust and money behind the business owner as an individual. They need to be convinced that the business owner has done his or her homework and has the passion, work ethic, business acumen and financial credibility to justify the investment or loan. So be prepared to present data. Opinions are important, but investors and lenders will want to see the math behind your assumptions.
Here are several financing options to consider:
- Family and friends – Treat them as if they were an investor or lender. They want to make money just as much as anyone else. Give them a credible reason to believe in your vision. Present your business plan to them the same way you would to the investors and lenders.
- Business owners who could benefit from your idea – For example, if you want to open up a lemonade stand, you may want to talk to the produce store that sells lemons. Similarly, if you want to open up an automotive repair shop, you may want to speak with the local auto parts store.
- U.S. Small Business Administration micro loans – These are government-backed loans of up to $50,000. You can find details of the program at the following website: www.sba.gov/content/microloan-program
- LinkedIn – This professional networking tool is becoming a fertile ground for finding investors. The key to using this tool properly and successfully is to find investors that are interested in your specific area.
You may need to modify your business plan and approach as you speak with different types of investors or lenders. A thought to consider: President Abraham Lincoln lost a number of different elections throughout his political career before becoming president. The moral of the story is that you can’t give up.
This article was written by Michelle Guilbeau of Examiner.com for CBS Small Business Pulse.