What is the interest of lenders and investors in small business financing?
Turn down Many small business loans due to poorly presented proposals, inadequate collateral, insufficient cash flow, and a lack of management experience.
These are the general points that lenders and investors are interested in; now, let’s look at the primary sources for small business financing.
1. Traditional Lenders: Banks, credit unions, and finance companies are the primary source of loans to small businesses. Many of these institutions have a small-business department and experience handling small-business loans. The most logical place to start is with the institution which handles your business and personal banking. You should do your best to get to know the manager and personnel at the bank. So don’t try to save time at the ATM! Being friendly with the bank staff will not guarantee a loan, but it will make it easier for you to make your loan presentation.
2. Government Sources, the Small Business Administration (SBA): The programs of the SBA work in conjunction with the traditional lenders, as they are mostly loan guarantee programs that reduce the risk to lenders in case of default. Some of the popular SBA programs are as follows
a. The 7(a) loan-guarantee program helps businesses that lack sufficient collateral by providing repayment guarantees ranging from 75-85%, depending on the loan size.
b. The SBA Low Doc loan program: There is only one form to fill out for these loans, and approval time is rapid (within 36 hours from when the SBA receives the applications. These loans are only for up to $15,000 but can use for start-up businesses.
c. The Spearers loan program: This is another quick-procedure loan guarantee program, but it covers loans up to $250,000. The SBA guarantees 50% of these loans, and interest rates in this program may be higher than in the other SBA programs
d. Microloans: These are loans for up to $35,000, which non-profit community-based organizations make.
3. Venture Capitalists: These are typically firms seeking investment opportunities in companies with high-profit potential. Usually, when you take money from a Venture Capitalist firm, you must give up some ownership and control to the investors. If you are thinking of going in this direction, it is imperative to investigate the VC firm and ensure that it has good references.
4. Angel Investors: These are individual investors looking for good opportunities in various businesses. You don’t have to be a high-tech company to attract these funds. Angels have smaller sums to invest than venture capitalists, and their investments range from $100,000 to $1 Million. There are many angel investors in the U.S. and Canada, with at least 170 investment groups or angel networks spread around both countries. You can find angels on the Internet, looking for angel associations in your area of business. You can also inquire with your local small business librarian, the chamber of commerce, the local SCORE office, and other non-competitive companies.
As you can see from this brief survey, the money for small businesses is out there. Prepare your proposal carefully and approach the institutions or individuals that best match your needs and capacity.