How Long Will It Take?

Understanding the Time Frame

Timing is one of the most mysterious elements of small business finance. Most people underestimate the time it takes to get a company financed, especially a new business. This leads to anxiety and frustration. Understanding the realities, instead of the dreams of financing can help you prepare, emotionally and financially, for the time period between starting your money search and having the money in the bank.

Table of Contents

1. Dreams Versus Reality

2. How Long to Expect for Different Financing Options

3. Time benders

4. Rhonda's Tips

1. Dreams Versus Reality

Dream #1: I'll get my financing any day now.
Few will tell you this, but months, even years may go by before you locate the amount and kind of financing you want. It takes a while to get all the right documents together to even begin the financing process: your basic financial package, your business plan, and a list of appropriate financing prospects. You'll find yourself spending a lot of time making telephone calls trying to find financing contacts and then setting up appointments to see funding sources.

Financial institutions, Uncle Sam, and even Uncle Stu need time to make up their minds after reviewing your business plan, weighing the risks, and just getting around to your plan in the stack of business plans on the desk. Remember, you're still building expertise at wooing and choosing investors: That $200,000 in seed money you took a pass on six months ago looks pretty good now that you've learned bankers won't fund your brand new company.

Reality help: Turn to alternative sources that can act quickly, but don't get overextended. Credit cards can tide you over, as can friends and family. Other sources worth investigating: home equity loans and loans against your life insurance policy. All have lower barriers than traditional debt and equity financing, and all small businesses fall back on them at some point. And while you're passing out business cards at the health club, take a minute to actually sweat off some stress on the Nautilus machines.

Dream #2: I'll make money on schedule.
You spent a ton of time budgeting your personal and business expenses, crafting a business plan, and mastering financial statements, but every entrepreneur encounters surprises. Modeling your profitability projections on industry averages may add a dose of reality, but it's no guarantee you'll reach the same goals. Building a client base for a business is a slow and largely unpredictable process. And unforeseen events are the stuff real lives are made of.

Reality help: Give yourself a good financial cushion when you budget. Save more before starting your own shop. Be extra careful on expenditures. Don't get carried away by your first big client -- it may take a long time before the second one comes along. Start saving a percentage of all income right from the start as a reserve.

Dream #3: I know a lot of wealthy people -- they'll invest.
So the guy who works out at your health club is always telling you about his investments and how he's looking for the next big thing. Call him anytime, he says. But when you do, he's less than excited. And your rich uncle Bob who said you could always call on him, tells you please don't call again. The reality is that people who talk big when there's no proposal before them can get extremely serious when it finally comes time to fork over the dough. Don't be surprised that the big talkers aren't very quick to pull out their checkbooks.

Reality Help: Do your financing search in a professional manner. Don't expect someone to invest just because they know you; in fact, some of those closest to you may have the hardest time seeing you in a fresh way. Come up with a long list of potential funders before you start on your money search.

Dream #4: Everybody else has had trouble with this concept, but I'm different because I'm better.
Every entrepreneur thinks he or she is special: they've got the best concept, product, execution. And indeed, you may be special. But the financing community is unlikely to recognize your uniqueness as quickly as you think they should. If you're in an industry or business that has had trouble getting financing before, expect to have trouble getting financing too.

Reality Help: See what the experience of others has been and plan accordingly. Don't beat your head against a brick wall. If the banking community isn't lending to real estate developers in your area because of a backlog of unsold homes, you're unlikely to get money no matter how deserving, until the economy changes. You're going to get treated like everyone else, even those with inferior products.

Dream #5: I'm in a hot industry; I'll get money right away.
Just because your industry is hot, doesn't mean you are. Funders are still going to give a good, hard look at your business plan and your management capability. In a hot industry, you'll be up against a lot of other people looking for money with similar products or concepts. The competition for investors may be just as tough as in a slow period.

Reality Help: Do your homework. Come up with a top-notch business plan. Get a good management team. Take advantage of being in a hot industry by being one of the best opportunities in that industry presented to funding sources.

2. How Long to Expect for Different Financing Options

If you need money this week, better use:

• Credit cards
• Existing line of credit
• Friends and family

If you need money this month, you can apply for:

• A bank loan
• New Line of Credit
• SBA Low-Doc bank loan
• SBA Microloan
• Loans from friends and family
• Loans from personal sources
• Asset/Receivables financing

If you need money within two months, look into:

• SBA 7a Loan Program for $100k+
• Investments from Personal Sources
• Investments from Friends and Family

For money within 6 - 12 months, go to:

• Any Investor Sources
• Public Offerings
• Private Placements

3. Time benders:

Age of business. Loans to established businesses often move faster.

Amount of loan. A smaller loan gets approved faster, all else being equal, and if the lending institution makes small loans.

Complexity. Quirky or new technology businesses can take longer to get approved. Unusual businesses will take a longer time to find investors.

Specialization. Expect quicker turnaround times from small banks or banks with small business divisions. If you choose a venture capital firm that specializes in your industry, you may get a quicker review.

Established relationship. If you have an existing relationship with a lending institution, bank, or venture capital firm, you're likely to get faster action.

4. Rhonda's Tips

Business planning expert Rhonda Abrams offers tips and insights into the financing time frame.

Ask someone how long it took them to raise money for their business, and they're likely to say, "Just a few weeks." Yeah, right. Raising money is sort of like giving birth: everybody somehow forgets the labor pains as soon as its over and just concentrates on the results. It sounds better to say that raising money was no sweat, that somehow they were in demand, and so you're unlikely to hear the truth from many other entrepreneurs.

So, the biggest surprise in raising money is often finding out how long it takes. Prepare yourself--emotionally and financially. Give yourself a realistic time budget on how long you'll allow yourself to be in the money raising game before switching gears. And don't be hard on yourself -- if it takes six months to a year to get investors you aren't all that unusual.

Find ways to keep the income coming in while you're raising money. This will help take the pressure off, even though it may reduce your focus somewhat. It's hard to do, but may be worth it in the long run.

Words You Need to Know * Financing Resources and Help
Back to Financing Your Business Home * Idea Cafe's Home

© Idea Cafe 1996.