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6 tips for raising financing for your small business

At some point in the life of your business you will most likely need to get third party financing, whether it be for startup costs, launching your product, expanding your sales force, implementing new manufacturing methods, or for any other phase of business.Although getting money is not difficult, getting the right money at the right time on the right terms can be a challenge.Here are six tips that you may want to keep in mind when raising financing for your small business.

1. Decide how much capital you need and ask for more than that.Figure out how much money you have to raise to achieve your next business goal and then add that number to your overall operational costs.Take that number and factor in six to nine months worth of operational costs to add to that.The sum is roughly how much capital you need to raise.The point is to have enough money to both keep the company running and achieve specific milestones in order to demonstrate increased value before you need to seek more finances.

2. Seek out funds before it becomes an absolute necessity.Don't wait until you are scraping the barrel before you start looking for finances because it could take months for the paperwork to be accepted and processed, possibly leaving you in the red for longer than your business can afford.If you are looking at getting a loan from a bank, count on the process taking two to three months.For Small Business Administration (SBA) loans, expect four to six months.For angel investment or venture capital, count on three to 12 months and for grants, a year.Although it is possible for financing to occur in less time, leave a buffer zone so that you aren't sitting out of the game while your competition advances.A good rule of thumb is to start raising money six to nine months before you're either due to run out of cash or you expect to need it for expansion.

3. Develop a strong relationship with a bank or other lender that can easily and quickly give you small loans to tie you over in case of a delay in your long-term financing process.You can develop a relationship like this by taking out small loans from time to time and paying them back in an agreeable manner.Additionally, you will have to show your business plan and if you are able to show that you have the ability to reach milestones that you have set in place in the past, chances are they will consider you a safe risk and will be willing to play with you.

4. Don't take money from any lender.There are good ones and there are bad ones.Only take money from someone you like and respect.As you set up a relationship with an investor, you are committing time and energy to that person as well.Don't agree to take someone's money that you never want to have to deal with again because chances are, you will.Also, you will want to find investors that understand the industry that your business serves.
To find good lenders, you will need to do some research.Start by making a list of financiers who understand your market or product and have worked with companies at the same stage as yours, and start approaching them with your proposal.You can find these types of financiers on the internet as well as in the phone book and by word of mouth.

5.Decide whether you want "active" or "passive" money. Active money comes from financiers who will work closely with you, so you will definitely want to make sure this is someone that you can work with.They often add value by introducing you to sales prospects and other influential contacts.If your company is just starting, you could probably really benefit from these types of financiers because of their contacts.However, if you already have enough active connections and you just need cash with no connections, take passive money. Investor relations can be time-consuming, so factor that into your equation.

6. Make sure that if you are selling off portions of your business (equity) in order to raise capital, that you keep the greater portion of the stakes for yourself.The decision-making must be all yours.The capital can come from anywhere, but the business is yours. Once you sell a percentage of your company, recovering it is very difficult and very expensive.Rather than selling off large chunks, consider bringing in a larger amount of smaller investors.

So here you go, six tips for raising financing for your small business.Although there is a lot to consider when making a presentation to a lender, these points should get you headed off in the right direction.

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