Financing Your Business Plan

The one portion of a business plan that causes more stress than any other is the financing section. Where can you go for financing? Many people make erroneous choices for their funding sources. Small business entrepreneurs assume that a bank would never give them funding and that their only choice for money is a venture capitalist. After all, didn't they help several companies receive financing in the '90s dot-com boom? Owners of large companies, on the other hand, know that venture capitalists do not want to get burned again as they did at the turn of the century, and assume a bank loan will be sufficient for them. Guess what? They've both got it backwards.

Banks are the best source of funding for small businesses. In fact, there is an entire government arm—the Small Business Administration (SBA)—that exists to aid small businesses. While the SBA doesn't give out loans, it does guarantee loans, at which point SBA partners give you the money for working capital, equipment, land, and leasehold improvements. Your business plan must completely adhere to SBA guidelines, however. A loan officer will look most kindly upon an entrepreneur who is armed with a well-organized business plan.

Venture capitalists are the best financing choice for larger companies simply because larger companies have greater track records. Most venture capital firms view thousands of business plans; most are unimpressed by the documents they see. Venture capitalists want to bet on a sure thing that will give them a maximal return on their investment. They take a controlling interest in a company, but in return, the entire power of their considerable resources will ensure your business' success. So your business plan has to grab their interest in the executive summary and hold it all the way through.

A third choice is an "angel" investor. Angel investors can be anyone from a rich relative to a well-off businessperson to a member of an organized angel group. They don't necessarily take a controlling interest in your company, but they do expect a good return on the money they lend to you.

Business plan financing is indeed the most gut-wrenching aspect of your business plan. But the right choice of funding will be the difference from your business concept soaring, or remaining a far-off dream.