Part Two Of A Two Part Series - Business Plan Essentials - Debt Or Equity Funding?

A thorough business plan will be required in order to obtain financing or funding from venture capitalists or angel investors (An angel investor generally wants less control of your company and a slower return on investment). There will actually be a different twist in preparing the plan depending upon applying for a loan versus selling to investors. Lenders (debt financing) generally want to ensure that you have the collateral to cover the loan in case of default; company growth is actually secondary. If using the plan to present to lenders, make sure to include the following:

Amount of Loan

How funds will be used

What this will accomplish - how will it grow the business

Requested repayment terms

Collateral offered, and a list of existing liens against collateral

Venture Capitalists are actually seeking to become a part of your organization; thereby investing in your business. They are looking for dramatic growth and they expect to reap a major portion of your rewards! In a survey of 250 venture capitalists, respondents were asked to rank five important factors that influence their decision with 5 being the highest rank you could award and 1 the lowest:

Quality of management team! (Score of 4.1) This includes a strong management background & proven record of success.

Size of the company's market (Score of 3.3)

Uniqueness or brand strength of product or service (Score of 3.3)

Return on Investment (Score of 3.5)

Potential for Growth (Score of 3.0)

Of course, additional factors in your plan should include an exit strategy for investors (buyback, sale or IPO) and the percent of ownership that you are willing to give up to investors.

Seem intimidating and overwhelming? Don't have the time? Well, taking the time and energy up front can eliminate many of the headaches and frustration that result from a lack of preparation. Keep in mind that there are limitless loan options, including SBA 7(a) Guarantee Loan which is a multi-purpose loan program, an SBA 504 loan for businesses to finance major fixed assets, and a plethora of loan options through local and national banks. Some of your smaller community banks will actually develop a loan custom tailored to your particular needs. For example, one lender interviewed provided a loan to a doctor based on his accounts receivable.

A few great resources to assist with your business plan include SCORE (Service Corps of Retired Executives www.score.org) and the Small Business Administration. Both have great templates for startup businesses or those looking to expand. Or contact Versatile Writing Solutions...after an in-depth interview, we will prepare your plan whether for debt, equity funding, or just to get you on track. If you prefer to write it yourself, we will be happy to review it for you.

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