How to Raise Money for Your Business

Even with the credit crunch and tightened lending standards, knowing how to raise money to start a business or keep it afloat without a bank, is always good information to have.

The phrase cash is king has never packed so much importance as it does today, but even in good times, cash always trumps any other funding mechanism. But, if you don't have cash just sitting around and the bank isn't willing to bend a little for you, there are other opportunities that exist for businesses. You just need to know where to look.

Smaller Loans
Instead of asking for half a million dollars, why not ask for a smaller loan? Business owners looking for loans under $100,000 have a better chance at actually getting what they need than someone looking for a huge line of credit.

These smaller loans are called microloans. The maximums that you can receive will vary depending on location. Oftentimes, if you go to an area that is trying to bring in more business, you will find that the loan maximums are much higher because they want to provide greater incentive for business to come.

You just need to make sure that you have good credit to begin with, a solid business plan and a cash flow management system in check. Remember, no one's going to give $100, let alone $50,000, to someone who doesn't have a plan in place. Would you?

To find out more information about how to get a microloan in your state, just check with your local SBA chapter, which should be able to point you in the right direction.

Venture Capital/Angel Investors
Of course, getting money via this funding vehicle requires some amount of homework. Venture capital investment is down just like traditional lending. However, if you know what industries are hot or will be hot once the recession ends, you may be of interest to a VC. Industries such as biotech, medical equipment or software always take a larger share of the VC pie, so if your business is within these industries, you may want to look around at what opportunities are out there right now.

Friends and Family
Asking friends and family for money is not easy. However, many entrepreneurs can attest to going that route if a bank has turned them down. The only problem is that the adage about not mixing money and friendship has some obvious truth behind it.

If you find yourself having to go to a best friend or your parents for money, treat the conversation as though it was a business deal. Don't come knocking on a door unexpectedly asking for $50,000. Instead, ask that person out to a lunch or have them over for a meal and preface the invitation with the fact that you want to discuss something very serious with him or her.

If the friend or family member agrees to loan you the money, draw up a loan document agreeing to certain terms such as monthly payment you agree to make, interest, when you agree to have the loan paid off, etc. It will speak to your professionalism and also give this person piece of mind that they will see their money returned and that you are worth investing in to begin with.

Assess What You Do Have
Although banks are not extending credit to just anyone these days, lending based on what you have is coming to the forefront. This means that a bank is willing to give you a loan based on whatever collateral you put up front. By doing this, you are agreeing that the bank can seize those assets (such as equipment or your inventory if you do not pay back the loan). This is usually an option put out there for people who do not have good credit.

Go Local
Small banks or banks located within your state that lend to a niche audience, could be good for you. Although you can't help but hear all of the bad news about banks going under with the subprime crash, not every bank was subjected to the fallout from the meltdown. Look for banks that mainly lend to businesses. Ask around with other entrepreneurs or with a local chapter of an entrepreneur group to see where other business owners are pulling out loans.

Vendor Lines of Credit
You go to a bank to get money to buy stuff from a vendor, right? Well, what about just talking to your vendor to see if you can get a direct line of credit through them. Oftentimes, you can work out a payment system rather than paying in full upfront. And most vendors are willing to do this if your business means enough to them. If you go under, then they could go under, so making sure you stay afloat has a direct impact on them.