As a small business owner, the biggest question on everyone’s mind in any market and particularly today is how do I finance the growth of my business? A growing business can be like a good Italian sports car, it looks great and drives well, but if there’s no gas in the car, it won’t go very far.
1. Debt. Using debt to finance your growth is a great opportunity to raise capital in today’s market, just like discovering a sunken pirate ship in your neighbor’s pool. Unfortunately, all the “leg work” done by our friendly politicians to increase lending to small businesses has yet to pay off. It’s still pretty tight on the bench. Expect to be required to have at least 30% collateral on the loan and a credit score of 700+. SBA loans have a little more opportunity, but cap loan size limits.
2. Private investors. Targeting private investors in today’s market has taken on a new light with the troubled credit markets. It is still not easy, a good investment package must have a clear, concise and specific business plan that identifies the experience, the growth potential, the investment, the return on investment and the schedule for that return. Don’t be fanciful, don’t kid yourself, and be direct. If you’re not making a profit in your business now and haven’t hit home runs in the past, it’s going to be a long road, but it’s always worth a try.
3. Venture capital. The search for venture capital funds to grow your business has lost much of its luster in the last three years. Possibly because the tap has been turned off for new deals, but also because companies have begun to realize that the terms of VC deals are about as friendly as a badger with hemorrhoids. You need to have a pretty tight concept with a good track record to attract VC funds in most cases, and these deals usually won’t work for you, even if they work.
4. Franchises or licenses of your business. The franchise continues to be a viable expansion tool depending on the concept and business model in the current market. How does this relate to funding? Franchisees invest in a business model through the structure of a franchise relationship. The initial franchise fee and royalty payment to the franchisor (you) replaces the investment in your business. That, along with new locations for your operations, a larger brand, marketing capability and other attributes of a growing franchise system, equates to increased sales and opportunities for strategic partnerships.