1. Make a Simple Presentation
In raising money for a smaller business, you need to make a quick, simple presentation. You need to show why the business is sound, how much money you need, when the money will be paid back, and what collateral you can offer.
2. Bring Numbers
If your business is up and running, bring your latest annual and/or monthly income statements and balance sheets. If your business is a sole proprietorship, a partnership, or a small corporation, you may have to personally guarantee any loan. In this case, bring a statement showing your personal net worth. Also, you should provide a cash flow projection that shows when borrowings will be repaid.
3. Look Professional
The financier’s opinion of your capability and trustworthiness will be a major factor in the bank’s loan decision. So dress conservatively, and appear relaxed and confident about your business prospects. If you are seeking funding for a relatively new business, include a résumé of your previous accomplishments in your presentation package.
4. Tailor Your Presentation
Appeal to the needs of the person you are approaching for money. If you are seeking debt financing, emphasize the certainty of your ability to repay the loan; don’t emphasize prospects for sky-high profits. Remember, debt financiers do not share in profits. Big talk about profits will make a debt financier view you only as a risk taker or an unrealistic dreamer.
On the other hand, if you are making presentations to equity investors, you certainly want to emphasize your upside profit potential.
5. Avoid Personal Guarantees
Many small corporations’ borrowings will have to be backed by personal guarantees by one or more shareholders. Avoid this, if you can.
We all assume that our businesses will succeed. But it is conceivable that they won’t. Many personal guarantees will never be called. But wouldn’t it be more reassuring to know that your personal assets are protected from business creditors?
Many years ago, the bank that financed my grandfather’s shoe business changed ownership. The new bank suddenly demanded that he personally guarantee the company debt. He refused and immediately took the firm’s banking business across town to a bank that offered him financing without requiring a personal guarantee.
However, if you’re looking for funding for a very young business, such as a firm that’s only been in operation for a couple of years, then you’re almost certainly going to have to sign a personal guarantee.
6. Talk with Your Lawyer First
Before you raise money from anyone other than a bank, you need to talk with your lawyer first. You need to be careful what promises you make to potential investors, and especially any promises you put in writing. You don’t want to just hand them your business plan or financials. You need to get your lawyer to write up all kind of legalized caveats and draft the legal agreement and any other necessary agreements that finalize an outside investor.