Capitalizing a Business

Most entrepreneurs are undercapitalized. They start a business on a wing and a prayer. Is that you?

When I look back on how I started my businesses, I must confess that I always had more hope than money. I’ve been extremely lucky and successful, but I can’t credit that to any bankers. I have usually financed my own extravaganzas, but I won’t tell you that’s always the best way.

The most important thing I now believe, is that you are prepared for when you do need money. Rather than going to a bank when you are desperate, if you develop a relationship ahead of time, it won’t be frustrating for you. Investigate the banks or lending resources in your area and see which fits you the best.

Start to build a relationship with a banker/lender so that they will understand you and your business. If they comprehend what you are doing and you have a tangible strategic and marketing business plan to go along with it, you are far more likely to be able to draw upon funding when you need it. Then of course, you must make sure you pay it back on time and terms you’ve made arrangements for.

You can even arrange for a letter of credit, so you have quick money when you need it. Although I won’t confess to being a fan of bankers, I’ll tell you that they are a necessary evil, so you might as well prepare yourself for doing business with them. Today a faithful banking relationship is harder to come by, primarily because so many smaller banks have been bought or merged with larger ones. You are becoming more and more or a number and unless you can bring a great deal of money to their coffers, they don’t want to pay attention to you.

That’s the reason it’s so important to find a smaller bank that you enjoy dealing with and which is looking for a professional person. You need to be able to explain how the money will be used, the amount you need to finance, the terms you’re looking for (even though they will dictate this), and where you project your business.

You may never use their funding or services, but the more you keep them in your loop, the better. As you get publicity or written about, or come out with a new service or product, let them know about it. If you have a newsletter, put them on your mailing list. If you put out an e-zine, include their email address.

Once they understand you are an active member of the business community, you have a greater chance of being on their radar screen. This way, when you approach them, you won’t be in a panic mode. There are certain people you need whether you want them or not, and the lender is one of them.