This is a question that every successful company must ask at some point. Unsuccessful companies rarely need to as they know they need money! When you take in capital, you have to decide what type of capital is the right kind for you.
Generally debt funding comes from a bank. The upside to taking in money from a bank is that the ownership of the business stays 100% with the founders. They usually need to personally sign or agree to the obligation and often will be asked to pledge personal assets to the bank in exchange for a loan to the business.
Many clients ask us if they can simply take out a loan in the business name. The answer: very seldom. A business is a like a newborn baby. It has no credit, no history, and no income. Basically, it's not a very sure thing. This is why banks lend on assets. By nature, banks are not speculative organizations and therefore can not make loans to businesses that aren't asset-backed. Generally banks like to see the money they lend you end up in assets. Meaning, borrowing $100k for advertising is the least ideal. Borrowing $100k for equipment or land or building, is the most ideal.
In bank funding, the bank couldn't really care less whether you make any money. All they really want to know is if you can make the payment. If the business plan for a bank loan answers this question thoroughly, and if you have the right mix of capitals and assets, then debt financing is the "cheapest" form of capital to take in.
With debt financing, you are convincing someone to give you someone else's money. With investors, you are asking for their money. Very different.
In exchange for investing in the business, an investor will usually require ownership of the business up to or maybe in excess of 51%. If the management team is strong, they may not need a controlling interest. Either way, the business plan must demonstrate a proper return on investment to make the investment seem appealing. Sometimes investors will take a stake for what we call "status plans." Meaning, they'll invest to be a VIP at a new club, or have table honors at a new restaurant. These deals are seldom and most clients are better suited to seek traditional investors looking for a quick buck.
A business plan from MasterPlans can help you with either goal, and our consultants can help you make an educated decision which type of funding makes the most sense for your needs.
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Work Her Way by Carolyn Kepcher Carolyn Kepcher of The Apprentice fame has used MasterPlans on two occasions.
Skout Natural by Jason and Denny Pastega Skout Natural received a $200,000 bank loan. Trailbars are flying off the shelf.
Conductor by Seth Besmertnik and Jeremy Duboys Conductor received $2,600,000 in Venture Capital and expanded to 70 people.
Senior Homestyle Living© by Ron Cheney Raised $20MM-$250MM in capital for a replicable elder care development in Texas.