How to Raise Fresh Capital Without Getting in Over Your Head

You are in business. You found this article because you have been surfing the internet looking for business funding opportunities that will allow you to raise fresh capital for your business without getting in over your head.  Join the crowd.  At last count, Google listed 298 million hits for “business funding.” If you refined your search for “business funding opportunities,” you would pare down that number to 54.5 million hits but, if you check “business funding opportunities in the U.S.,” you would be back up to 294 million hits.

The Search for Cash

Paring down that daunting number of leads is not as difficult as it appears. Most of the people searching for information on the internet rarely drill down more than two or three pages into the search results and it is a truism on the World Wide Web that, if a website is not listed on the first page of the search results, the chances are that it will never get found by anyone who is not actually looking for that specific website. Then, again, it is also true that there is an enormous amount of duplication in the results for any online search, with the same information being captured and republished by millions of websites around the world.

There are three ways in which advertisers are able to push their websites to the top of the search results.

1. Become a government agency, because Google and other search engines push government websites to the top of their search results
2. Purchase Google Adwords that move your website into one of the top three positions on the search results
3. Hire an SEO company and pay them big bucks to help you structure your website to force Google to move it up in the rankings by manipulating their search algorithms.

So, rule number one for this kind of search is simple: start on page three or four of your search results, because the first two pages are filled with companies and individuals who have stacked the deck to appear at the top of the search results.

Rule number two is easy: look out for the paid advertisements in the Google search results and consider avoiding them. Companies that buy ad space on Google are making a statement that they do not believe in the fairness of the search algorithms so they want to buy their way to the top of the list. Remember that, in most cases, the same paid advertisements will appear on every page in your search results.

Rule number three is even easier: don’t bother to drill down more than six or seven pages into your search results because, if a business is listed that far down, the chances are they are not getting any business, and those are not the companies you want to deal with.  You do not want to deal with them because, unless they have a fairly consistent flow of business, they are not going to be in the loop with current relationships among the investors who actually have real dollars to lend out.

If you look at this example of a search result for “business funding” reproduced here, you will see that the first three items on the left-hand column (1) are clearly labeled as advertisements. All of the items on the right-hand column (2) are also advertisements, although they are not individually labeled as such.

Below these, on the left, you will find a combination of website listings achieved by the manipulation of the search algorithms by the advertisers, government agencies, and news items that are related to the search term but no search engine provides a reliability index that indicates the extent to which the websites listed on the page actually deliver the services they purportedly exist to provide.

There are, however, other problems associated with the websites in these three categories. Government agencies are almost impossible to work with, rarely fund the most needed kinds of business’ financial needs – start-up money – and usually come with strings attached. Companies that purchase adwords to grab viewer attention are usually more interested in volume than quality. They are sifting large numbers of applicants to find the “easy closing” deals, the ones that are easy to sell to the money people. Harder deals get tossed over the side. Companies that use SEO consultants have a big nut to cover in terms of their monthly SEO expenses, so expect them to come at a higher cost than companies that do it themselves – but those are the hardest companies to find.

Once found, however, the next question is whether or not the people behind those websites are on the up and up or fly by night and, unfortunately, in most cases the answer is Caveat Emptor: Let the buyer beware.

Words of Wisdom

Alan Milner has been a serial entrepreneur for more than 40 years. For much of those 40 years, he has been a fundraiser, raising funds for both for-profit and nonprofit organizations, and a mortgage banker. (Editor’s Note:  Alan Milner is a co-founder and executive editor of BindleSnitchNewsDigest.)  

He has a lot to say about the “business capital” business. “I got into fundraising from journalism when I discovered there were a lot of organizations that had good ideas but were incompetent at putting those ideas down on paper. As a grant and proposal writer, it turned out that my most valuable function was the reporter’s ability to interview witnesses and organize their often chaotic thoughts into cohesive statements.  That seemed to work just as well in proposal writing as it did in news writing.  I developed a belief that the essence of fundraising was to be able to put complicated ideas into concise, readily understood documents. So, my first criteria for a business development consultant is literary: can the consultant write well enough to convey the client’s ideas to the funder.

“The problem with most of the offers you see on the internet is that there is no such thing as a business loan that you can obtain without having at least marginally acceptable personal credit…with at least a 640 median credit score….but there are thousands of websites that say the exact opposite. Now, as a credit repair expert, I can very often get a borrower’s credit scores up by 50 to 100 points, but I can only do that when the borrower has no recent bankruptcies or foreclosures, no outstanding collections or a willingness and ability to pass off those outstanding obligations. Yes, it’s true that there are errors on almost every credit report, but most of those errors have little or no impact on the actual credit scores. Remember that before you get involved with ‘quick fix’ credit experts. Credit repair takes time.”

So, what do you look for when you are looking for someone to help you find business capital?  Here are some basic rules:

1. If your median credit score is under 640, the chances are that you are not going to get anywhere with business capital acquisition. If they tell you otherwise, walk away.
   • Solution: consider partnering with someone who has better credit scores and setting up a formal relationship through a limited liability corporation or a Sub chapter S corporation.
2. Anyone who does not want to look at your personal credit report is not a serious contender for your business.
   • The only business loans that do not require credit reviews are cash advances against credit card receipts, which are usually considered loans of last resort and are limited to a percentage of your monthly cash revenues  in your credit card merchant accounts.
3. With a minimally acceptable credit score, expect to work your way up to your credit goals over a period of time, building up business credit in a series of increments as you borrow and repay loans. It is possible, but it is not easy.
   • This may entail borrowing money that you don’t actually need – and paying it back again, quickly – to build up your business credit profile, but that is exactly what a reputable business capital consultant will have you do.  
4. Do not try to do it yourself.
   • You could do it yourself, but business capital specialists’ services usually come built into the interest rate you are paying on your notes, and it may be worth the additional cost to have a real credit expert holding your hand as you go through the process. Just because you are an expert at what you do does not mean you are an expert in raising money.
5. Ask around before you engage the services of a capital consultant.
   • Talk is cheap. Money isn’t.  When you are thinking about putting your money where your mouth is, ask around and determine whether the firm you are going to deal with has a good reputation on the street, among your colleagues and your competitors. (Don’t be afraid to ask competitors for their input.  You may be surprised at their candor.)

In Search of Righteous Lenders

After so much negativity, you might be thinking there are no honest brokers out there, but there are. As a general rule, the honest brokers do not ask for upfront fees, and do not expect you to pay in advance before you receive your line of credit. In fact, the honest brokers usually pay themselves (QUITE WELL) from the proceeds of the loans they secure for you. While there may be some upfront costs, just as there are with home mortgages, those fees should be tied to actual services required to process your applications, items that may include credit reports, credit repair services, appraisals for securitized properties, the creation of written proposals, budgets, and project management plans. These services take time and cost money, and you should not expect an honest broker to assume the risk those costs represent on your behalf.

Resources For Further Reference:

Forbes Magazine: Shortcuts To Entrepreneur Funding Are Usually Scams

Inc Magazine’s  Five Common Startup Loan Scams You Can Avoid

Inc. Magazine is normally responsible, but the first of their five startup loan scams is no scam at all.  The suggestion that a start-up entrepreneur doesn’t need a business plan is ludicrous.  No one will talk to you without a business plan and a five-year pro forma budget…and those aren’t documents that every entrepreneur can produce. That takes special expertise and a good business plan is well worth the money, if you chose the business consultant well. It only becomes a scam when the consultant is fraudulent.