Alternative sources of financing for entrepreneurs

Securing the financing needed to get a new company off the ground can be a real challenge for Maryland entrepreneurs. Banks and other conventional lenders generally base their decisions on the figures found in business ledgers and on financial statements, and the lofty sales projections and plans for rapid growth contained in business plans are unlikely to be of much interest to them. Some business owners get around this problem by agreeing to provide a personal guarantee, but even this may not be enough to convince banks when large sums are involved.

Venture capitalists and angel investors approach financing differently, and they are often prepared to invest significant sums with entrepreneurs who have big ideas. However, they also expect a great deal in return, and entrepreneurs will likely have to issue them a significant amount of shares in return for much needed capital. In addition to money, venture capitalists may offer entrepreneurs assistance and advice, but it may be wise for business owners to not rely too heavily on this support.

Due diligence is an entrepreneur’s friend when dealing with venture capitalists, and research on websites like LinkedIn can reveal details of previous deals and how the businesses involved fared. Entrepreneurs in need of cash should also compare several financing options instead of seizing the first offer, and they may feel less intimidated during negotiations if they remember that venture capitalists rely on investing in new businesses in order to keep their doors open.

Entrepreneurs are usually optimistic and hopeful individuals, and they may sometimes overlook the negative aspects of a proposed deal because they believe that they will be greatly outweighed by the benefits. While being able to step back and take in the bigger picture may be an invaluable business asset, it can also lead to willful blindness and costly decision making shortcuts. Attorneys with business law experience could review proposed financing documents to identify unfavorable clauses and provisions.

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