You have a great business idea. And your well-crafted plan is ready to go.
Now comes the even harder part: Finding money. Or, rather, securing the right type of financing.
It can be a daunting task. The U.S. Small Business Administration says "inadequate and ill-timed financing is a close second" among the most frequently given reasons why businesses fail. (Poor management is No. 1.)
But seed money is out there in many forms if you know where to look. And even if you find a source or two, there are big decisions to make.
Do you raid your savings? Do you take out loans? Do you max out your credit cards? Do you persuade investors to take a chance on your idea? And what about those new Web sites that seek to match budding entrepreneurs with investors, almost like dating sites?
It could be any of those options or a combination, depending on what is the best financial fit for your type of business and how much control you want.
"I have conversations with a lot of entrepreneurs, and the conversation goes like this: Should I be thinking about debt, equity or grants?" said Bo Fishback, vice president of entrepreneurship at the Ewing Marion Kauffman Foundation, a Kansas City, Mo., nonprofit group that encourages entrepreneurship. "It has to be heavily driven by the business case and what you need for your venture."
Take Amy Epstein, who wanted to open a floral shop after years of working at several Baltimore-area shops. Epstein, 32, didn't know where to turn so she went to see a SCORE counselor, who advised her to put together a business plan before seeking money. SCORE, a nonprofit group, partners with the Small Business Administration to provide free education to entrepreneurs.
Epstein pulled together $5,000 with help from her parents and her grandmother and took out a small-business loan of $60,000 from Columbia Bank on the suggestion of her SCORE counselor. She opened her Canton business, Crimson & Clover Floral Design Inc., in 2003.
"Looking back on it, I think I was so naive about it. I had no idea how much things would cost," Epstein said. In fact, she said, startup costs were closer to $45,000.
Her advice for new business owners: You don't need all the money right away. "You could start out small and as you make money, you could put money into it," she said.
Here are some general options and advice from entrepreneurs, investors and small-business experts:
Make sure you're prepared with a well-thought-out business plan.
You'll get myriad questions about your business model, how you expect to make money, who your competitors are and why your product or service may be in demand. Your business plan should cover all those issues, so potential financiers can be confident that you've done your homework.
Be passionate, persistent and patient. You may hear plenty of no's from potential investors before you get a yes.
Stephen D. Umberger, director of the Small Business Administration's Baltimore District Office, suggests entrepreneurs approach their banks first. You may already have a relationship with a bank that participates in the SBA's most-used loan program, called 7(a). Participating banks make loans to borrowers, but the SBA provides a guaranty on a portion of the loan.
The maximum borrowing amount is $2 million with a 75 percent SBA guaranty, according to Umberger.
Umberger's office, which covers most of the state, except Prince George's and Montgomery counties, administered the guaranty of 988 loans representing $134 million in the fiscal year that ended Sept. 30, 2007.
"When a potential borrower goes to their lender looking to start up or expand their business, and they are unable to meet traditional lending requirements, the SBA guaranty could help overcome that obstacle," he said. "There are many situations in which the SBA guaranty is an attractive option, such as an insufficient down payment or longer-term repayment requirement."
Besides the federal government, check out state, county and local development offices, which offer other loan and funding opportunities.
In Maryland, where biotech commercialization is a priority, the state's Department of Business and Economic Development runs the Maryland Venture Fund, a seed and early-stage equity fund that invests in technology and life sciences companies. The fund is just one example of available programs.
Even better than loans are grants, which entrepreneurs don't have to repay. Fishback, of the Kauffman Foundation, noted the federal government's Small Business Innovation Research program, which provides grants for research and development that fit the needs of various federal agencies.
Another option is equity funding in the form of angel investors and venture capitalists, two avenues mostly associated with Silicon Valley. The catch: You may have to give up some management control, and it likely could mean selling out to a bigger enterprise or taking the business to the public market down the road.
But don't discount them.
Marianne Hudson, executive director of the Angel Capital Association, said angel investors, who pool their money, are looking for growth companies that can be taken to a larger market. Angel investors generally invest in early-stage companies, Hudson said.
One example is Build-A-Bear Workshop Inc., which began as an angel-backed enterprise but now operates its namesake stores at malls across the country, Hudson said.
"You need a company that you could really scale," she said.
In 2006, angel groups - about 250 in the United States - invested $25.6 billion in mostly early-stage businesses. The association's education arm, www.angelcapitaleducation.org, lists angel groups throughout the country.
Unlike angel investors, venture capitalists invest with other people's money, so they work with a larger pool ranging in the multimillions.
And they typically invest in high-tech and later-stage companies, said Emily Mendell, vice president of strategic affairs at the National Venture Capital Association. Last year, VCs made $29 billion in investments, she said.
"Ultimately, the VC's goal is for a company to go public or to be acquired by a larger player," Mendell said. "If you're looking for VC money, you have to be thinking big."
A new wave of fundraising Web sites have cropped up in recent years to connect entrepreneurs with potential investors.
They are like classified advertisement sites, where entrepreneurs post funding requests with brief summaries of their businesses. Investors can cull through pitches and decide whether they are interested. Some sites charge fees, while others do not.
Because so much of raising money involves tapping your existing connections, these new Web sites build on the popularity of social networking online, which can especially appeal to young entrepreneurs, some experts say.
"It's a big decision to write a check to somebody else," said Fishback of the Kauffman Foundation. "It'll be an interesting space to watch."
hanah.cho@baltsun.com
Finding money
Approach your local bank.
Contact your state, county and local development offices.
Look for unique opportunities, including business-plan competitions sponsored by local universities and economic development arms. Rockville Economic Development, for example, hosts a competition for women entrepreneurs with prizes of $2,500 to $10,000.
Network among trade groups and business organizations. They can make referrals to individuals and angel investors or venture capitalists.
Seek counseling through SCORE, volunteers who provide free education and information to small businesses. The nonprofit group is a resource partner with the Small Business Administration. Find local counselors at www.score.org
The SBA's Web site provides a wealth of information on loan programs and other financing: www.sba.gov Counselors are also available at SBA's Baltimore district office: 410-962-6195.
[Sources: SCORE, interviews with experts]
Web Tips
Below are Web resources that provide information for the new and established entrepreneur.
RaiseCapital.com: www.raisecapital.com
FundingUniverse: www.fundinguniverse.com
Go BIG Network: www.gobignetwork.com
The Ewing Marion Kauffman Foundation: www.entrepreneurship.org, www.eVenturing.org
National Venture Capital Association: www.nvca.org
Stanford Technology Ventures Program, Educators Corner: http:--edcorner.stanford.edu/
Counselors to America's Small Business: www.score.org
Small Business Administration: www.sba.gov
Angel Capital Education: www.angelcapital education.org