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Finding Funding - First Steps

By the FEC Directory

These days you are very excited as you key in on your new business idea. It's a great business to be involved with, it's family friendly, community enhancing and potentially very profitable. It's not yet available in your town or just not being done as good as it could be, if you were to do it yourself.

You have taken the time to do a little bit of research, found some equipment providers and maybe even taken a quick look at your local market opportunity through your community demographics.

Your thinking it may work and are looking to take the next step in pulling together what you need in terms of a completed business plan so you can get out there an present your idea to potential funders. Good for you.

But that's the good news. Unless you have $50,000 - $100,000+ in cash and/or equity the number one challenge you face is finding your funding. How are you going to raise the capital you will need to build and operate a family fun center? Your number one challenge is that this is a 'retail' venture. You are providing a service for people within your community who come to your facility and pay a fee in exchange for a favorable family experience.

Unlike new technology that allows you to speak Spanish to your computer (or whatever), your market value is in the experience you provide your guests, and outside of your capital assets (property and equipment) is very much an intangible asset. Investors like Venture Capital firms, Investment Bankers and Angel Investors are typically looking for an asset that has a tangible value and can be patented which could hold a lot of future potential for it's investors and would work to protect the investor should the business partners go under.

Unfortunately, because of this and in terms of return on investment (ROI) many funders, including the above are not typically interested in a retail venture. That leaves you with a few choices;

Traditional Funders

Bankers are traditional funders. It is their job to loan money to qualified people and investment opportunities that will drive a profitable return to the bank. These folks are responsible for the banks funds and for making money off the funds if loaned. Most traditional funders want the entrepreneur(s) to be fully invested in their business projects. Meaning that your banker wants to see a comfortable level of commitment from you and your team before they are going to be interested in loaning you any of their funds. This level of commitment varies from 20% - 40% of the total funds required.

This means that if you determine from your business plan that to realize your project goals you need to raise $300,000 dollars, the traditional funder will expect you and your partners to bring from $60,000 to $120,000 to the project yourself.

SBA

The Small Business Administration offers a wide range of products and services to help the small business owner/start-up. Programs are as numerous and various as there are business opportunities and this article is not able to review and qualify them all. However our experience confirms that there have been projects funded under an SBA program with an availability of funds anywhere from $25,000 and up. In many cases, an SBA loan could be used as a first-round or seed funding to get you to a point where a traditional funder would be interested in helping with the balance of your funding needs.

Each program and amount of support is dependent upon various factors and is recommended that you visit their web site or speak with a representative to get a better idea of what could be available.

Circle of Influence

You take your idea and your business plan to your family and friends and sell them on yourself and the investment opportunity. You would use this initial investment as you would a loan from the SBA and leverage those funds as a first-round or seed funding to acquire the balance of your funding.

In taking this route you may find that you will need to a) dilute your ownership in exchange for their hard-earned cash, and/or b) offer them a first-return out of your operating profits (after the bank takes his, of course) to make the "promised" quick repayment to them. In many instances we find that this option offers greater patience and understanding then your typical banker, however it can also fray relationships with friends and loved ones as the returns you expected are slow in coming.

Lease Options

There are companies out there that will provide you with lease options for your Capital expenses (rides, activities, etc). However, our experience indicates that for a start-up business, these companies will provide a maximum of $25,000 to $30,000 if you can jump through the same hoops your banker makes you jump through. Meaning, credit checks, payment history, personal and existing business financial's (if applicable) etc.

Not to discourage you, but these are the realities of finding funding. Take these two steps to ensure your success;

1) Much of this can be overcome by doing your market research on the front end, is this is viable project? Once that research clearly indicates that this IS a viable project, then the next thing you should do is prepare an executive summary and make appointments to see as many potential funders as possible.

2) Start with YOUR banker, they know you best. Ask them for some advice and take your executive summary with you. Give them a clear overview of your idea and lay it out on the table. Tell them exactly what you have in personal equity, financial relationships with friends and family and what you could bring to the table in terms of cash and/or equity.

Based on your current/existing banking relationship, your brief executive summary, and the cash/equity stand you have to offer, ask them what the realities of securing additional funding would be, and at what amounts. Of course before dong this you will want to have some knowledgeable idea of what the total package will cost.

Letting the Secret Out

You may be thinking that this idea is so good, everyone you present it to will want to steal it from you. From your banker to your lawyer to the guy at the Pharmacy, everyone will be off and running with your idea - so you can't present it until you have a completed plan and are ready to go.

But how do you know at that point whether or not all the hard work you put into your plan is actually able to get funding? Professional people operate under a code of ethics that prohibits them from acting on business plans and/or ideas they may come across.

It is recommended that you take your project idea in the early stages and speak with bank lenders in hard, realistic terms of what they can and can not do for you. This is very tough for most people because you may end up hearing what you don't want to hear. But hearing it up front will save you hours of work, heartache and give you specific direction so that when you get at it you are moving down the right path.

A best option for preparing to meet with potential funders may be our exclusive fun center business plan template. Quickly determine your start-up costs and prepare an executive summary along with completed financials, click here for more info.

Don't be put off by bankers who insist you have a completed business plan before they will meet with you. Be prepared, know in gross terms what the project may costs, ie; $250,000 to $350,000 and then tell them that you need to get a reality check on the availability of funds based on your equity. If not entirely from them, then what programs or other resources may be available that the bank and others may be connected with.

Armed with a little bit of industry knowledge and some local market data you should be able to get a banker, somewhere to help give you a reality check on your ability to find the funding you require. With this, the time and dollars you spend on pulling together your project planning are well spent. Good luck and happy hunting!

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