As our economy seems primed for recovery over the next two years, the best time for completing a heavy planning exercise for your “green business idea” is now. Timing is everything in business, and the present “lull” affords many aspiring entrepreneurs the opportunity to prepare in advance for the “impulse” wave that is sure to come shortly. Planning and preparation is key, but previous guidelines on how to find initial startup capital to get you past the critical early development stage have “morphed” into a moderately different profile.
Yes, the rules have changed dramatically over the past decade, and all for the betterment of “clean-tech” small businessmen. The “virtual” age has arrived, but one area that has become more challenging, however, is acquiring adequate financial funding, the primary reason that most startups fail early. The previous decade has literally “scrambled” the playing field. If you have substantial capital that you are willing to risk in your new pursuit, then you are well ahead of the game. If you are like most Americans that are under water on their home mortgages and struggling to find new sources of revenue, then the path to securing startup capital may prove more daunting than expected. Here is a list of potential funding sources, organized by increasing level of difficulty:
- “The 3-F’s” Friends, Family, and Fools: The people that already know and trust you offer the easiest path to obtaining early funding. This group includes any lines of credit or cash advance possibilities on existing family credit cards. Trying to sell friends on your concept is also a good training ground to prepare for the more difficult investor audiences.
- Vendors and Business Partners: These groups will naturally benefit from your success because you represent increased sales for them. Don’t be shy in asking for advances that will help you build inventory or for longer terms for paying bills. Everyone recognizes how slowly cash turns over these days. They, too, are waiting for new growth to fuel our economic recovery.
- Development Agencies or Incubators: Every state and major university has established one of these agencies or incubators in a region near you. Seek their support to gain access to their networks of financial and business support patrons. These groups can also assist in filing for grants, an “art form” that only the experienced hand can make work.
- Your Local Banker: Unless you have large deposits on account or an income level that will support new loan payments, your local banker will most likely shun any request on your part for a loan. Most banks have suffered heavy losses recently and credit rules are tight. If you do have home equity, they can help with an SBA loan application. They generally do not invest in the promise of an idea, but they do have broad networks of contacts that may be able to help you. Approach them with this intent in mind.
- Angel and Venture Capital Funds: This industry is still licking its wounds from years back, and most capital raised is used to shore up the poor performers in their existing portfolio. Each fund manager may see fifty or more potential “deals” in a month and may select only one a quarter for further study. They usually demand that you already have paying customers for your business solution. If you believe that you can compete at this level, then get prepared, but expect a four to six month timeline before any check is written.
- Online Funding Services: A number of online funding services and communities have sprung up to help entrepreneurs find funding outside their geographic area and existing networks. Some, like RaiseCapital.com, incorporate social networking features to help entrepreneurs connect with investors, others, like Prosper involve peer to peer lending. Others, like Small Business Loans Direct is provide merchant cash advances and small business loans.
When starting your new venture, be sure to leverage your local networks and seek small business loans directly from new “virtual” sources before approaching the more time-consuming and structured alternatives.