You need money. Opportunity and expansion have been waiting in the wings. You're proud to tell your family and friends, "Business is good," but in the meantime you're thinking, "With more money, business could be great. It could be fantastic."

The question is, where do you get capital for your business? Who will lend it or give it, and at what price? What do you have to do to convince someone it's a good investment?

Explore Your Options

Before you assume your only choice is a bank loan, take stock of other capital sources.

Venture capital (equity funding) is rapidly growing in popularity. These firms provide money in exchange for equity or part-ownership in your company. However, this type of funding can be difficult to procure. A venture capital source might receive between 2,000 and 4,000 business plans a year, but only invests in 10 to 25 of them. Like bank loans, you've got to sell yourself in order to be approved; you've got to make yourself look like a solid investment.

The Small Business Administration (SBA) works in conjunction with local banks. These banks grant loans to business owners, and the SBA provides guarantees for as much as 75 to 80 percent of the loan amount.

Family and friends are often willing to help. Don't take this arrangement any less seriously or professionally than a traditional loan, however. Make sure you completely understand the arrangement, are mutually satisfied with the terms, and then put it in writing.

If you can afford to tap your personal savings account to cover the next phase of your business growth, consider this a feasible strategy. Not only will you eliminate the loan application process, but also you might avoid repaying a loan at a higher interest rate than what you are currently earning on a savings account.

Put Yourself in the Lender's Shoes

Whether you're applying for a bank loan or seeking venture capital funding, it's essential that you look good on paper. Think of it this way: what if it were your money? What would you want to know about the business you were investing in?

First thing's first. A lender wants to be sure that you are capable of paying back the loan. Banks are in the business of loaning money -- it's part of their mainstay. They're always receptive to good, low-risk loan customers. High-risk loan applications are often denied, and understandably so.

How to be a Good Loan Customer

Ask. It's amazing what you can find out from a little research. Simply ask your bank what they need to see, and in what format. They will require at least the following information on your loan proposal:

**Business name and address, along with the business principals' names and social security numbers.

**The purpose of the loan. Explain why it is needed, and where the money will go. Be specific.

**How much you want. Make sure this number is in synch with the purpose of your loan. If you've specified that you need $25,795 for computer equipment, don't ask for a $50,000 loan.

**A description of your business, including the ownership structure, history, number of employees, and current business assets.

**Short biographies of your management team, including education, experience, and accomplishments.

**An overview of your products or services, along with a description of how you've been faring in the marketplace.

**Well-organized, clear financial information. Include balance sheets and income statements for the past three years, a personal financial statement, and a list of all collateral you're willing to promise to the bank as security.

A Little Low on Collateral?

Lenders typically look for a minimum of two sources for the repayment process. Luckily, there aren't just two sources available. In most cases, there are at least three: cash flow, collateral and guarantors. So if you look around your office and all you see in terms of collateral are a few chairs, a desk, and a nice view of the park, you can still present a strong loan application if you find strengths in other areas.

Cash flow represents the difference between your inflow of cash (sales or revenue) less your cash operating expenses. Not surprisingly, nearly all lending sources like to see good cash flow.

A guarantor is someone who co-signs a loan, promising to repay the loan if the borrower can't produce the cash.

What if you're weak in both cash flow and collateral, but have a great concept or product? Don't give up hope. Venture capital sources often invest in businesses with this profile, in exchange for equity (ownership interest), or for royalties from future revenues. Visit your local library or the business section of your favorite bookstore and pick up Pratt's Guide to Venture Capital Sources to learn more about your options. A software package called VentureTrack 2000 () also provides valuable information.

If in the end you aren't initially approved for a loan or a venture capital arrangement, don't be discouraged. Take the opportunity to ask why and then work to improve the strength of your application in that area.

Resources

For more information on raising business capital, contact the lending department of your bank, call the Small Business Administration "Answer Desk" at 1-800-827-5722; or visit the SBA web site at www.SBA.gov.

Richard Krichbaum is the President of MNS Financial Management, L.L.C.

Cristin Bishara is the Marketing Director for Markham Norton Stroemer & Company, P.A.