The credit market has not loosened up much and Wall Street is still in the doldrums, but let's face it, it has never been easy to raise money.
If you have a game plan, money can be found, even in these tough times. "Millions of dollars are made in a recession," says Steve Bloom, chair emeritus at SCORE in Atlanta. Here's what you have to know.
Have a plan: A killer business plan, that is. Because investors and bankers are holding their purse strings a whole lot tighter, take the time to fine-tune, even overhaul, this document. At the same time, reassess your competition and marketplace, and be realistic about the amount of money you'll need. After all, venture capitalists expect a substantial return on their investment and banks require loans to be paid back in full on time and on schedule.
"People expect 100% financing but banks are not paid to take those risks," says Bob Seiwert, senior vice president in charge of the American Bankers Association's Center for Commercial Lending and Business Banking. "We do not take equity risks. We rent money. We like to be paid back on time."Put yourself in their shoes: Think like your investors. What do they need to know to be won over? When it comes to banks, maybe it requires presenting them with three visions of the future, from optimistic to pessimistic. "Bankers are going to do a risk analysis anyway," says Seiwert. "Why not contribute to the risk analysis? If you have a game plan dealing with the different risk scenarios, they will feel more comfortable with your risk."
"There is a clog in the pipeline," warns Emily Mendell, vice president of strategic affairs and public outreach at the National Venture Capital Association. "There is no IPO market right now so venture capitalists are spending more time and money on these companies so that takes money away from new companies."
"Lots of people say they would like to draw down their line of credit they talked about six months ago or are ready to do their expansion, only to discover the money is not available or the terms have changed," says Seiwert. "If you have not done so already, sit down with your banker and ask questions. How is the bank weathering the current crisis? Are you still making loans? If I request X amount of dollars today, would it be available? If so, on what terms?"