Five Things to Know Before Venturing Out for Business Capital

Starting a new business can be tough. There are so many things to look at, so many things to consider. First and foremost you need a well researched and thought out business plan. Having this plan will greatly increase your rate of success at finding the other things you need to get your business off it's feet.

Of course the next thing you must have is capital. However, how do you go about this and what should you know before approaching lenders? Following are five things that lenders and/or investors are looking for before they will consider lending or investing in your business.

One thing they are looking for is an exit strategy. This may be something you never expected to hear but it is actually a top thing that they look for. You may not even have thought about it at this point, but it is very important to investors to have some idea where you are headed in the long term. By planning for an exit strategy you are showing your investors that you are confident in the return of the money that they are investing. They are looking for approximately a tenfold return in five years.

One of the most common ways of implementing an exit strategy is through acquisition. A bigger company buys out your company sometime in the future. For example Google bought out Web 2.0. Of course there's also the possibilities of going public or liquidating the company too. In the end hard data and facts is what will persuade the investor. So remember to research.

Another area that investors are looking at, are entry barriers. Meaning they want to know what safeguards are in place in order to prevent competitors from coming in and making off with your idea? How have you set up for this possibility? Are you prepared for this possibility?

Some examples of entry barriers include patents, legislation, and the uniqueness of the product. Having strong entry barriers, barriers that keep competitors from entering the marketplace with a reasonable replacement of your product, will help you have a greater hold on the market in which you are competing. Having a greater hold of the market means more profits and more of a return in the investor's eyes.
While being able to keep competitors away from your ideas is great, you also want to be able to show the investors similar products or services. At the very least, let the investors see how well something similar has done on the market. This gives them some confidence in how well your idea may or may not work in the long run. Being to different can be a hindrance, though you can still get funding, investors want to see some proof and comparing to similar ideas can help show them this.

Some investors, especially venture capitalists, will want to know if you have any existing revenue to start with. This will help protect you in the long run, especially if you are working with venture capitalists that will end up owning most of the business in the end. Having some revenue at the start will help protect your hold in the company. Of course the biggest thing that investors and lenders alike are looking for is how much and for what reason(s) do you need the money? This requires some real hard research on your part.

To know exactly how much you will need requires a lot of in depth research into how much everything will cost, down to the most minuscule detail. Being accurate will save everyone a lot of trouble in the long run. You will also want to know exactly what each cent of the costs is going to. The investor or lender looks for someone who has this well planned out.

Having a full financial plan written out is a great idea before approaching a lender. Some things you don't want to forget to list are operating expenses, marketing and any legal fees that may be appropriate.

Now that you are armed with the basics needed before approaching a lender, you will find yourself with a lot greater rate of success. The most important things to remember is that a lot of hard work and research can pay off in the end.

Research all the details needed to start your business. Make sure you write a thorough and complete business plan that the investors can see and follow these guidelines and you should have that capital you need in no time.

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