Traditionally, the process of seeking small business financing has been characterized by identifying local commercial lenders, talking to commercial loan officers, writing some form of business plan, filling out mountains of forms and then making your case to the lender.
Typically, you relied on banks, the Small Business Administration (SBA), family, friends, partners and personal resources for that much needed capital. Nowadays, things have changed dramatically. Technology has not only increased the presence of venture capitalists, but it has also provided more diverse tools to find that potential source of funding.
The Required Basics: Nothing has Changed
Technology has definitely expanded the opportunity to learn more about and gain access to alternative sources of business financing, but certain issues remain the same:
- Startups must have a feasible, well-researched business plan.
- Existing businesses, at the very least, should develop a comprehensive, substantial marketing plan that clearly demonstrates how expanded or new-market penetration will be achieved.
- The business and its business owners need to have satisfactory credit reports, even to be considered for an SBA loan.
- The collateral must be viable, existing and/or included in the fixed acquisitions resulting from the loan. Vending machines are not good collateral. Equipment and machinery associated with operations and manufacturing are good collateral items.
- The loan applicant must provide a minimally acceptable level of investment in the startup or expansion costs associated with the loan.
- You must convey, by your communications skills, appearance, background experience and the collective resume of key personnel, that the startup or expansion will be supervised and managed by capable individuals.
- In the case of existing businesses, historic financial statements need to demonstrate profitability.
If you cannot deliver these conditions, "stop, do not pass go, do not collect $200."
Expanded Financing Options Online
Traditionally, knowledge of venture capital, factoring, angel investing, commercial finance companies and alternative sources of financing was limited to the more sophisticated investor. Typically these were clients of small business development centers, SCORE and other organizations devoted to developing small business.
The Internet has changed all of that, and today you can access diverse range of Web sites that specialize in business development and funding.
Venture capital is not a new source of funding, but the advent of the Internet made it easier to learn what attracts this type of investor or investor group and how to pitch to this investment source. Various venture capitalist Web sites let you submit information — conveniently and confidentially.
- The Capital Networkis a networking group targeting venture capital investment opportunities in the southwest United States. Submit basic information about your company, including your business plan (up to 4 MB).
- Garage Technology Ventures, the brainchild of Guy Kawasaki, has been an Internet mainstay for some time and targets businesses in services, software, clean technology and material sciences industries looking for $500,000 to $2 MM in funding. You are invited to submit your executive summary via e-mail attachment. By the way, you may be interested to read Kawasaki's speeches concerning the Top Ten Lies of VCs and entrepreneurs.
- NVST is a true venture capital portal. This well-designed, easy-to-navigate site welcomes venture capitalists, entrepreneurs and service providers alike and provides a wealth of information. The $395 annual membership fee is well worth the investment for entrepreneurs seriously seeking capital in the private investor market.
- Capital Factors, LLC is a site that specializes in factoring — the process of using your accounts receivable to access capital. If you successfully negotiate a financing agreement, Capital provides online access to your account.
Of course, the more traditional commercial lenders and banks are accessible online, but access in the form of document submittal and Internet transactions are not available as are with the less traditional funding sources.
Prior to seeking and requesting capital, every entrepreneur wants to know what it will cost in terms of interest and the monthly payment schedule. A trio of Web sites, when combined, offer a comprehensive set of calculators.
Palo Alto Software, the business-plan software giant, offers a collection of calculators associated with investment:
- Starting Cost Calculator — what does it cost to start a business?
- Cash Flow Calculator — shows you how business-to-business sales, carrying inventory and rapid growth can deplete a business' cash on hand.
- Investor Offering Calculator — in the classic start-up situation, investors purchase a share of the company for an amount of money. They look for a return on investment (ROI) when the company grows.
- Discounted Cash Flow Calculator — analysts use discounted cash flow to explore the "time value of money". In other words, $1 will usually buy you more today than tomorrow.
- E-mail Marketing ROI Calculator — ever wonder what might be the return on your e-mail advertising dollar?
- Pay-Per-Click Advertising ROI Calculator — Pay-per-click is fast becoming an advertising-cost reality for companies that rely significantly on Internet traffic.
- Website Conversion Rate Calculator — a very valuable calculator for e-commerce sites.
Calculator Web offers calculators for investment, finance, planning, marketing and compensation, including the following:
- Marketing Calculator for estimated return on investment from a marketing campaign.
- Rent versus Buy lets you use the residential lease-versus-buy format for equipment.
- Lease Calculator for the monthly repayment schedule of leased equipment.
- Loan Reduction Calculator to determine how much you'll save (interest expense) should you increase monthly debt payments.
- Inflation Calculator lets you estimate the future value of a dollar.
- Budget Calculator is great if you're self-employed and want to know the approximate net income your business needs to generate in order to fulfill personal obligations and keep the company afloat.
And then there is Bankrate.com, the personal financing portal that offers a collection of basic financial analysis calculators, including:
- The Current Ratio determines your ability to pay off short-term debt.
- The Quick or "Acid Test" Ratio also determines your ability to pay off short-term debt, but eliminates existing inventory due to the fact it is often difficult to quickly liquidate inventory.
- The Debt-to-Asset Ratio assesses the ability to pay off existing debt.
- Return on Assets (ROA) assesses management's ability to generate income with existing assets.
- Gross Profit Margin indicates how much of each sales dollar will remain to cover operating expenses and profit before taxes.
- Operating Profit Percentage indicates how much profit you can expect from sales.
A word of caution — don't interpret all of this information to mean you are guaranteed funding. Yes, the Internet has opened many avenues to information about, and communication with, many sources of funding previously unknown or inaccessible to most of us.
However, the ability to contact and network with these funding sources via your computer will not increase the opportunity to raise the capital if your needs are not substantiated, well communicated, analyzed and presented in the appropriate manner. And face-to-face contact will eventually be required to seal the deal.
Steve Windhaus is principal of Windhaus Associates, a business plan consulting firm serving small, existing and startup ventures throughout the United States and overseas. His clients range from technology-based firms in software development, e-commerce and telecommunications to retailers of ATV and watercraft and a variety of service firms. Steve is a published author who also conducts training in business plan development and participates as a judge in business plan competitions. Steve can relate to small biz environments relying on computer technology. His technology skills are all self-taught.
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