1. Understand why a particular relative or a friend is keen to help you out. First of all, he or she is close enough to help you out of a problem. Secondly, they believe in your competence. But understanding their motives to help you is useful.
2. Be prepared with your presentation pitch. Be ready to answer questions and also promise them full refund in case the venture fails. Assure them that you also have a back up plan in case a particular strategy fails. Be honest and professional even though the entire presentation might take place in the kitchen.
3. Make it clear that whatever money a person is parting with would be returned with interest. Loaning the money does not make the person a part of the setup. Announce a bonus when you reach a certain level of sales.
4. Whoever is loaning you money would be keen to know about your repayment plans. So, have it ready in line with your cash flow projections. Work out simple interest terms and explain the repayment plan in simple language that they understand. Avoid lump sum payment plans even if it is three years from now.
5. Even when the deal is amongst friends and family it is always a wise decision to formalize it with the help of a legal expert. Draw out an Agreement to be signed by the potential investors which should include every aspect of the loan including repayment plans, interest rates, contingency plans and so on. This makes the whole plan have a professional aura.
6. In stead of approaching a bunch of family members and friends for seeking financial help you could also line up a couple of very close people who have the requisite resources. This way, you may not take any loan, but get their reassurances that they would bail you out of a tricky financial situation, in case things go drastically wrong with your business.
7. After you have accumulated the loans from close friends and family, do a final check as to the feasibility of your business plan before you cash the checks. Be as critical and analytical as possible and be brutally honest with your strengths and weaknesses. Are you sure that everyone who have given you loans are clear about the repayment terms? This way you can have a clear conscience regarding spending other people’s money fruitfully.

Finally, taking business loans from family and friends is pretty common. However it can be tough if you are not professional in your approach, do not chalk out a realistic repayment plan and do not make the loan legally valid. At the end of the day, make sure that you do not lose a friend simply because you started a business.

The good thing about borrowing business finances from family and friends is that you have emotional ties with this group of people and this can be really helpful. But customers are unknown and you can expect some amount of skepticism when you ask them to finance your startup business. Therefore, you must give them enough good reasons for parting with their money. In fact, you have to convince your customers that investing in your business is going to benefit them more than it would benefit you.

Frankly speaking, why should a customer invest in your business? Primarily because he thinks that you would give him better value for money than any other traditional avenues of investment. The customer must see potential in your line of products; trust your business competence or he may feel that by investing in your business, you are likely to offer them preferential pricing that is better than what they are getting in the market.

Since there are no free lunches in any industry, your customer has to perceive distinct and tangible benefits provided by your business before he parts with his money. It is also important to remember that every relationship you have had can play a beneficial role in raising finances. Over and above your family and close friends, even your ex-employer, if he is supportive of your business ambition could be a prospective financier. Even the host of vendors, customers and associates who you knew during your corporate years can be approached for investing in your enterprise.

There are endless ways you can involve your customers to help you out with your startup business. It need not always be in the form of hard cash. Assistance could be in the form of advance payments for goods or services which you promise to deliver; reduced rentals for office space; underwriting of the development cost of your product and many more.

The way you approach your customers for money also counts. Experts agree that you need to sound confident about your proposal and should convincingly relieve them of any doubts they may have. Some experts even say that you need to ask for a substantial sum – since you are not going to visit the same customer twice with the same proposal.

Raising business capital with the help of customers is indeed a tough proposition but it is not entirely impossible if you create a win-win situation.

It is no wonder that banks, to play safe on all counts, usually prefer to provide loans to businesses which are already operational for at least 2 years. Not just that, they also check the tax returns of the business during these years as well as the personal tax returns of the owner. This means that your personal life along with your credit history is under a scanner when you apply for a loan from a bank.

In case you fail somewhere within the set parameters of a lending bank, chances are that they would refuse to deal with you outright. You would then have to look for that loan from credit card companies or family and friends. However, if you meet the statutory requirements of a bank, you would still need to be familiar with some aspects by which your business loan is quickly sanctioned. Here is some useful information to guide you on the way:

• Chances of your loan getting sanctioned are high when your relationship with the bank and its officers is cordial. The ideal situation is when they view you as a valued customer with impeccable credit records.
• To generate confidence in your loan proposal, highlight any success that you have already achieved in the area of business where you want to startup or expand. This puts you on the right track right from the beginning.
• When evaluating your loan application banks prefer to see your profit and loss statement, income statement on an accrual rather than on cash basis. Be as honest and accurate as possible when presenting the finances to your bank. This can speak volumes about your integrity and future trustworthiness.
• The lending bank would be particularly keen to assess the predicted debt-to-income and debt-to-net worth ratios. Therefore be clear on your financial forecasts including debt repayments and cash flow.
• Before finally sanctioning the loan, the bank would seek your personal guarantee. Make sure that you sound and behave convincingly regarding this important aspect as this is the final seal on the deal.

You have to remember that banks also want to do business and make money by lending money to creditworthy clients. While loan applications do get disqualified because the company is too risky to invest in, it is also true that loans get rejected due to lack of preparedness, clarity of vision and commitment and most importantly, lack of effective business communication. Therefore, when you apply for a bank loan for your startup business be adequately prepared, do your homework properly and be ready with all the financial variables that the bank might want to know before they sign on the dotted line.

• Moneyed people loan money to guys they are familiar with. But the worst time to ask for money is when you need it most. After identifying your ‘targets’ take time to ‘prime’ them. This means that develop familiarity with this target group while you are still contemplating raising the finances, not when you are in dire need. Some of the things you could do to keep in touch with this target group is to send them regular e mails to keep your upcoming project on top their minds, or even sending them short notes by snail mail – just to keep in contact, the ‘old pal’ way. The whole idea is to keep the contacts alive in your social networking loop.
• In case you are allergic to lawyers and accountants for inclusion in your social networking group, think again. These professionals may not directly be your potential financiers, but they have clients who can be. Moreover typical law or accounting firms have several partners, each dealing with a separate set of clients. Expanding your network is easier when each of them refer you to someone else, who could be your prospect. You have to remember that there is no other better way to develop and expand your contact list than getting into the ‘moneyed’ circuit through reliable introductions. Let one professional introduce you to three of his major clients, who in turn introduce you to more and this way the networking tree grows.
• Approach your more-successful peers. You are bound to notice other successful startup companies who have obviously got their own networking system right. Try to meet the head of such companies, explain your situation and chances are that they may give you a couple of hot leads. This could be tough in the beginning but once you become a familiar face at seminars and conferences, local chamber of commerce and so on, they would not mind sharing a couple of financing secrets with you.
• Rub shoulders with the have’s. There are plenty of places where the rich and famous go, including clubs, watering holes, yachting events, golf courts and so on. Use your charm at the right places with the right people to get included in their social gatherings. This is a good way to build contacts with potential financers.
• Once you are a familiar face in such circles it is time to put your gift of the gab to work. Ask for further contacts of people who are willing to finance your project or you could even request whether they would put in a word or two to the potential financer about your integrity. Recommendations and referrals work wonders in this circuit and it is only a matter of time that the right guy notices you and decides to help you out.

It is highly likely that you would feel frustrated at the lack of finances when you are venturing into your own business for the first time. But with a bit of preparation and following the social networking tips that are given above, it is possible to meet the right ‘money guy’ who is convinced about your project and your ability to deliver the goods and decides to part with the requisite finances.

1. Depending on the type of product or services you market, try to get payment in advance in stead of offering credit to your customers.
2. Make your customers use credit cards to buy your products or services. Sign up for a merchant account. Though you have to pay a fee for this service, it is still worth the while as it ensures steady cash flow as customers prefer using credit cards.
3. Pay bills on the required date and not in advance. This keeps suppliers satisfied and maintains your cash flow situation.
4. Manage your receivables more critically. Focus on larger sums first. Maintain a detailed date-wise payment schedule.
5. You can monitor your cash flow better if you budget according to the cash-in/cash-out schedule. Though this may not always be precise, but it helps nevertheless in planning.
6. Ensure that your invoicing system is as accurate as possible. A shoddy invoice is not likely to be paid.
7. For enhancing a quicker cash flow, offer discounts for long overdue receivables. However play this strategy when it is absolutely necessary.
8. Pay particular attention to accurate and timely invoicing. Invoices can always be made earlier and should be sent out at the earliest opportunity. Sending invoices via e mail in PDF format is an idea to increase speed.
9. Control costs. While you are doing everything to enhance cash flow, cutting down on avoidable expenses can also have a positive impact on cash flow.
10. Setting up a commercial credit line can prove to be effective when you are in dire need of cash.

Maintaining a healthy cash flow can make doing business more enjoyable. Hopefully, the tips given above are helpful.

If you do not want to go through the nightmares associated with taking loans from external sources, you might like the option of tapping retirement funds to get the requisite loan for your startup business. If used wisely and in a planned way, such retirement funds can be used to do business, where you do not have to pay any taxes and do not have to repay the loan. But before you consider this option, you need to be aware of its several aspects.

Established in 1974 the IRA and 401(k) primarily shifted the responsibility of using retirement funds from the employer to the employee. While the rules may seem complicated, the law clearly states there are only two areas where you cannot invest retirement funds: life insurance and collectibles.

Be that as it may, you need to be cautious regarding the distributions from the retirement account as many entrepreneurs have had to pay huge penalties because of inadequate or improper structuring of this type of business financing. Therefore, it could be a wise business decision to engage a retirement account facilitator or RAF for helping you out. RAFs can help you structure your specific retirement account for investing the funds in to your business enterprise.

The other very pertinent reason for using retirement funds to finance your business is that this helps you avoid expensive debt service. This ultimately means that you have more money to roll into your business rather than repay debts. Moreover, since the retirement account also partly owns your business, some portion of the profits can be rolled back to the account tax-deferred.

In case you are looking for business financing for your start up business or want additional funds for your existing business, think of retirement funds. However, it is always a good idea to seek professional help from a qualified RAF or attorney regarding the best strategy to invest the money into your business. These people are equipped to guide and advise you regarding managing your investments so that you get the best results for your business and returns on your investment.

1. First and foremost your customers provided your products and services have built a reputation of providing customer delight. A happy customer satisfied with your product or services would readily prepay. When this happens, you know how really ‘keen’ they are for what you have to sell.
2. The second and perhaps one of the most fail-proof sources are your suppliers and vendors. To get started with this, make a list of suppliers or associates you have that would directly benefit from the product or services that you market. However there are some strategic action plan that goes behind this move:

-          Find small suppliers who have free capacity and are looking for ways to increase their clientele and business. They are the ones who should be tapped first.

-          Offer them a direct benefit in return of the investment they make. If he is a printer or publisher for instance, request him to publish a brochure which you would market. If you are unable to sell them, the printer does not get any money, but if you succeed, they succeed too.

-          A small startup company intending to manufacture disposable gloves got his major share of finances from a small injection-making company who wanted to give away the disposable gloves to their customers for use during nursing.

-          Similarly, if your business source is a local pub or a discotheque, you could ask for money from this source for building your website. In return, you are going to provide them with a host of loyal customers.

-          If there is anything you do which can help in the supplier’s business, he would have no issues in lending you money to do this activity. Of course, you would also have to be prepared to face a lot of refusals, but your chances of succeeding are just a matter of time.

-          Another example comes to mind where this man wanted financing for starting a cork making company. He asked the bottle supplier to help him with the finances. While my friend assured him business of a specific number of bottles every month, the bottle supplier agreed to finance the corking machinery as this would help him with more business.

-          Treat your suppliers as your business partners. When they see money coming in if they help you out with finances, they would readily agree to your financial proposal.

1. If you have a fool-proof and professional business plan ready, and have a good working relationship with your local bank or a financial institution, then debt financing could one way to raise money for your business. The lending company will provide you with an extended line of credit or a loan with a fixed repayment schedule. They are going to look at the cash flow situation, liquidity of the assets and collateral. The upside to this type of financing is that you do not have to forego equity and it is available to smaller entrepreneurs who are incapable of getting equity funding. But the downside to this includes: interest payment and providing personal collateral like your home.
2. If your business is technology-based then grants from the Small Business Innovation Research (SBIR) Program under the aegis of Small Business Administration could be an option. This is an excellent option if you are involved in some kind of innovative research work. The good side to this type of grant is that this is really free money with plenty of leverage that it provides but the bad side is that these grants are not only difficult to procure but the usage of funds have to follow strict parameters.
3. Several entrepreneurs opt for equity financing, available both from private as well as institutional lending companies including venture capitalists.
4. Rich friends or benevolent family members could also be tapped for the finances where borrowing money involves less legality. However be wary of not spoiling the relationship or family ties in case there is some misunderstanding.
5. There are plenty of high net-worth private investors who not only provide the funds but also share their business wisdom. However, they are tough to find and may be tough to manage when they are operating in a large group.
6. Though their lending standards are higher than the rest, venture capitalists are a good choice, if your business has already become operational and your revenues are on a growth curve. While this group of investors has plenty of money to support you in future too, they typically prefer companies that are prepared to be sold off or have plans to go public in the next 3 to 5 years. They would also like to take part control of the business sooner or later.
7. Then there are ‘strategic’ investors who essentially belong to the same industry where you are selling your product or services. This group of investors finds your product ‘strategically significant’ for their own growth and prosperity and willing to help you with finances for growth. While their participation may raise the equity of your own business in the market and enhance your manufacturing, marketing or distribution abilities, they are strong enough to steer your business in a direction which is advantageous to them. In short, they can get on the driver’s seat for your entire business operations.

Finding the right funding source is a matter of critical importance and can shape your business growth now and in future. Many of these options are complicated or overtly risky. However if you do your research properly, you might end up with the right financier at the right time with the right resources.

Starting a business venture with some one else’s money is also a viable proposition where part of the startup capital can be your own, and the rest borrowed from friends and family. But if you decide to self-finance your startup business, there are a few issues that should be dealt with beforehand. These include: whether you are going to get the right return on investment; the time required to break even; future growth prospects of your business, etc. Finally you have to be ready to face any financial disaster, in case the business fails. Once you are clear regarding the safety aspects of the investment and its impact on your future life, it is time to look at the options you have to raise the money with self-financing:

• Your own savings
• Tapping your investments
• Mortgage refinancing and loans based on home equity
• Employment severance package
• Funds from retirement plans.

Touching your existing savings you have could be extremely risky, unless you have a completely fool-proof business plan or have another source of income like your spouse’s to help you run the family and so on. Obviously, the savings were for a rainy day and not all risks in life are covered by insurance.

Tapping your investments could be a viable option in self-financing, especially if you are still young and have time to make up for any losses. You could be borrowing against the stocks you hold instead of selling them outright.

Mortgage refinancing could cut down on your expenses and improve cash flow. Taking loans on home equity is perhaps better than taking credit card loans in the sense that here you are making use of an asset that you own and the interest on home equity loans is tax deductible. Many people use the money they get from leaving the services of a company to start their own business.

It is no wonder that there are so many penalties for withdrawing money from retirement funds. After all, this is the money that is accumulated with the contributions made by you as well as your employer for spending during your retirement years, when there would not be any steady income. However there is a law that allows you to use IRAs and 401(k) funds for any startup business where you do not have to pay any taxes and there is no question of repaying the loan too.

While self-financing could be one of the best options to raise money for your startup business, it is up to you to weigh the advantages and disadvantages of every option that is available to you.

There are several approaches to procuring a business loan. One of the traditional approaches is to opt for SBA (Small Business Administration)-guaranteed loans. Though SBA will not finance you directly, they offer partial guarantees to banks, credit unions or a nonprofit financing companies. With SBA standing up for you as a partial guarantor, you could obtain a significant amount of money from the local lender of your choice.

When applying for financial backing for your start-up business, the first impression is a lasting impression and in this case your loan application is the tool with which you make a mark. No matter what your source is for the finances, remember these vital points:

1. Your ability to pay is the biggest concern for the lenders. No matter how much money you borrow, they would like to know how you intend paying back the debt.
2. The amount of personal finances that you put in is an indicator not only about the risk you are willing to take in the business but also shows your seriousness of purpose.
3. Your ability to provide collateral increases your chances to procure a loan.
4. External conditions related to the overall industry to which your business belongs as well as the general economic scenario play a major role in the lender viewing your loan application positively.
5. Finally your own personality could also influence a lender’s impression about you and his decision to loan you the money.

Make sure that your business ‘resume’ carries the following information:

1. • A frill-free executive summary
   • Exhaustive business plan
   • Realistic financial projections.
   • Tax returns – both personal and professional.
   • Status of personal finances.
   • Resume of management.
   • All legal documents pertaining to the start-up business.

Your situation could also be that you do not have or cannot provide the above documents with your business proposal application. An alternative resource is to look at commercial financial companies who work with companies who are already operational. These lending companies primarily look at your personal resume and the collateral materials you can provide. Before you learn about how to get your loan sanctioned by such companies, it could be wiser if you learn what aspects can negate your application:

• Inadequate research and data about the potential demand for your product or service.
• Absence of prior experience in handling the product or service that you are going to market.
• Inconsistent or overtly verbose business plan.
• Absence of professionalism in personal deportment as well as business proposal presentation.
• Lack of evidence of risk-taking. You have not put in any of your own money in to the venture.

The lender is always looking at your own risk-taking abilities and your own stake in the business. Finally, the amount of prior preparation you do would be a deal clincher while meeting the lending company. All your statements including marketing and financial, should be backed by research and be credible. Only then can your business resume win the hearts of powers that be.