Three Questions to Ask Before Seeking Business Financing

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So many times small business (and medium-sized business) owners say, "I need money, I wonder if I can get a bank loan?" Or if they are technology company owners they say, "I need money. I wonder if I can get angel investors or venture capital?"

I say to this, HOLD UP! Do not jump the proverbial gun. There are some other questions you need to ask otherwise you will immediately limit your focus to one or two particular sources of small business financing. Put another way, if you hone in on the "how" too quickly, you shut down your imagination and limit your options. To broaden their perspective, business owners and executive management must focus on the "why" and the "what".

These are the questions you need to ask FIRST:

• How much money do I need? This is a crucial question. Yet there are so many business owners who cannot answer this question. The amount you need is a big driver of the best source of the financing. The true amount may be low enough that you can get a customer to pre-pay and thus have the funds you need. Some financing sources do not consider above a certain amount (i.e., $100,000) whereas others will not consider anything below a certain threshold (i.e., $1 million). If you have NO idea what SPECIFIC amount of money you need, then you are at a severe disadvantage.

• What is the money for? Does your business need working capital? Do you need money to expand sales and marketing efforts? Do you wish to acquire another firm? Do you need funds for software development? Or do you need overall expansion capital to expand the company across all of sales, operations, etc.? Again, the answers to these questions are key to determining the source of financing.

• What are your near, mid-range, and long term goals for the company? Do you intend to sell the company in the not so distant future? You may wish to pursue financing now from a strategic investor who could buy your entire company later. Do you have a number of partners or an intention to grow through partnerships? You may want to leverage those partnerships to cover expenses or obtain investment. Do you wish to expand internationally? Your sources are no longer limited to US-based entities.

Remember, asking the right questions FIRST is the key to deciding who you go to (i.e., the source) and how much you ask for (i.e., the amount). Better questions make for better decisions. Do limit your options by jumping to a conclusion or solution so soon that you shut down your imagination.

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