The Funding Landscape For Small Businesses Part 3
Of course this is a generalization but on balance it is typical of this investment group. In many cases surrendering equity in your business is offset by technical expertise and advice brought to the table by the investor. The investor will rely heavily on the business plan for data and strategic information and as long as the business plan is scalable and potentially profitable there is a chance of investment.
Banks and other lenders
Following the financial crisis banks were essentially closed for business in terms of approving new small business loans. This is changing slowly but the credit parameters are much tighter than they were previously. Despite this, bank funding is the prevalent source of funding for small businesses. In order to secure bank funding you will generally need collateral to provide security for the loan. Depending on your geographic location banks may also only lend between 60-70% of the total capital required. Banks make decisions by applying a credit risk to each business based on various metrics and risk appetite criteria. This is why a business plan is so important. In order to permit an appropriate credit assessment you will need a business plan. The more risks you can eliminate or mitigate in your plan the lower your credit risk will be and the more likely you will be to strike a favorable deal with your bank. Also bear in mind that if you can provide high quality collateral and deliver a supportable business plan you will improve your negotiating position. Big banks are now rebalancing their portfolio profiles and are beginning to lend to certain sector of small business.
Government guaranteed loans and grants
Depending on the nature of your business and your ability to provide collateral you may be in a position to apply for a government guaranteed business loan or business grant. For example, in the US you can approach the Small Business Administration (SBA) for assistance with obtaining a loan.