How to convince a lender to finance your small business

Business success is measured by how much profit you take home.Running a business is all about making money, if you can't make money your business will fail.But very few business owners have earned or saved enough money to finance their business completely on their own.In order to make up for the difference in funding, a lender is needed.A small business lender is usually either an individual investor or a financial institution.Regardless of who you are hoping to work with, you are going to have to convince the lender not only that your business is worth investing in but also that the investment is a wise one in that it will yield a return for the lender.Once again, business is all about making and safeguarding money.

There are a few common types of financing for new business owners; Angel Investors and Venture Capital.Angel investors can be a great way to get money in the very early stages of the life of a business.The amounts that are available through angel investors are typically much less than those offered by venture capitalists and these lower amounts are normally well suited to a small business.Angel investors are typically easier to get money from then are more traditional financial institutions. Angel investors are willing to take on projects that would be considered by banks to be too risky and too small for venture capitalists.Venture capital is a much more intensive process and is usually much stricter than angel investor financing.Venture capital is almost always associated with very aggressive growth and significant amounts of money being invested into the business.It will take significantly more to convince a venture capital lender to finance your business because they are often looking to make as much money as possible in as short as three to five years and don't want to wait a long time for their money to gain the profits they are looking for.

Regardless of what kind of lender or financer you are looking for, your first step in convincing someone to finance your business is to have a cohesive business plan.Among other things, a business plan basically spells out every aspect of what your business is and offers well-researched projections for profitability.No one is going to give you money just because they think you're a nice person or that you have a good idea.You have to prove that you have the know-how to turn that winning personality and one-of-a-kind idea into a profitable business.Show your lender that you understand what the expected expenses of your business will be at every step.Consider overhead costs like rent and utilities as well as start-up costs and maintenance costs for equipment.If you plan on employing people, break down all of the added expenses of doing so (health care, taxes, retirement plans, etc.).Don't forget to also include the material costs of the actual product that you intend to sell as well as the time that it will take to turn those materials into a marketable product (time is money).Include your plans for putting money back into the business when profits are made.It could be several years of re-investing your increase into the business before you start to be able to benefit from the profitability of your business.

Convince your lender that you are smart enough to know not only the basics of accounting and business finance, but that you also understand that operating a successful small business is a long-term commitment that mandates long-term planning.Do your homework and learn more about what should be included in a business plan and what specific investors are looking for before they commit money to a project.