Monday, May 12, 2008

Funding Your Business

Posting from David Soper, ex Private Banker for JPMorgan Chase and Financial Advisors for AIG on topic of funding your business:

Use VC as a last resort because bottom line, they take too much!!

PRE-IDEA BUSINESS FUNDING: If you are new business, think of how you can fund your business organically with a Home Equity Line of Credit or through family members or friends.

PRE-OPERATION BUSINESS FUNDING: You have a bizz plan and people and maybe a prototype but not operating yet. This is when you are ready for your ‘Angel Investors or an SBA LOAN. Angel investors are a softer form of VC because it is usually an individual that looks for start-ups. They usually do look at the business plan. Some of them just want an interest payment but most of them want to become partners with start-ups. They want to see that you have some of your own money in it or they may take a lien on your house. In other words, they want you to have “skin in the game.” SBA Loan process is much more rigorous and demanding.

POST-OPERATION BUSINESS FUNDING: After one year, this is when banks are going to consider lending to you, particularly if you have equipment or collateral. After two years, this is when the red carpet is rolled out in that banks will be willing to give you a line of credit. They look at your gross revenues, your ability to repay.

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