Financing Startups? Yes - But Be Sensible!

We are quite happy to offer purchase order financing to startups. Because of that, we get many calls from budding entrepreneurs looking for business financing. Many are disappointed when we decline the opportunity to participate in the business. In part, we decline many of them because they have unrealistic expectations. Here are some examples of things we see that will garner a DECLINE:

1. Entrepreneurs that don't put any money themselves

This one is a classic. We get a balance sheet that shows that the owner put $1,000 in their business with NO other assets or sales and expect us to fund the rest. I think there is a myth, in part propagated by some famous entrepreneurs that did start with $1000, that this is enough. Let me ask, why would *WE* risk capital if the owner is only risking $1,000? The short answer is we wouldn't - and don't.

2. No Experience

It is common for people to try and start a business for which they have no experience. As a matter of fact - I did so myself. But it is unrealistic to ask others to finance your startup until you have had some successful transactions under your belt. You should expect to self-finance your business until you learn the ropes, just like I did :-)

3. Unrealistic Goals

"Marco, this is a new concept and we'll be a $12,000,000 by the end of the year. We just need the Money. And, oh by the way, I only put $1000 in the business (read #1)." Sorry, the odds are that you wont be a going concern by the end of the year. Well thought out sales forecasts are a must. And also - tone down sales expectations - otherwise you could set your self up for failure if you don't meet them. Remember that running a startup is challenging.

4. Thinking their business has no risk (riiiight!)

This is a classic. I get a call from a startup entrepreneur who tells me their transaction has no risk. As a rule of thumb, I always turn these down. No exceptions. Even if everything else appears well thought out. All transactions have risk. Period. Otherwise, there would be an opportunity for Arbitrage. And if an entrepreneur cannot see that -then we consider them dangerous. Investors consider one of the few risk free assets to be US Government securities (e.g. TBILLS).

So weather you are looking for a business loan, factoring or any type of funding, keep these points in mind.

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Looking for information on purchase order financing? Read the purchase order finance blog or look for business loan financing in wisconsin.