“What do you mean I need a business plan?  I told you what I wanted to do with the money!”

The first time you borrow money from a financial institution, they will want a full business plan that includes a description of your product/service, your experience (and education), your market and how you intend to reach it, a list of your team (CPA, insurance rep, attorney, marketing consultant advisors, banker, etc), and your operating plan and future plans.  Lenders need this information as well as your financial information to make informed decisions.

“You need monthly projections AND financials—I gave you annual projections and you have copies of my income tax returns.  Isn’t that enough”?

Realistic monthly cash flow projections with detailed assumptions provide the lender with a better understanding of how you anticipate the money to “flow” through your business. Cash flow along with the Income Statements and Balance Sheets are important to lenders, as they will compare your anticipated revenues and expenses along with your historic financials with national standards for your industry.   If your financials are considerably out of range with national statistics, then you will need to discuss it with them.  Which brings up another point – do you know what your NAIC (North American Industry Classification) number is?  You may have more than one depending upon your business, i.e. you may sell plumbing supplies retail and wholesale, AND provide service.  Each of these will have a NAIC code of its own.  If this is the case, talk with your CPA if you have questions regarding this.

“Why do I have to come up 25% (or 30% or more) in cash? I can buy a car with 10% or less down.”

Business loans are different than consumer loans.  Once the lender has loaned your business money, unless it is collateralized by land and buildings, the lender has little chance of recovering the money in the event of a foreclosure.  This is also why the bankers require those parties with 20% or more ownership of the company to personally guarantee the loan.  The lenders want to know that the owners will make every effort possible to repay the bank and if they don’t, the lenders will then go after personal assets.

“My product (or service) is so great that I won’t have any problems selling it. AND my product is so exclusive that there isn’t any competition out there!”

Lenders know that there isn’t a product on the market that doesn’t have both direct and indirect competition.  It is much better to realistically analyze your market, identify your competition and provide explanations as to how you can successfully compete.  Lenders feel much more comfortable lending money to business owners who have real knowledge of their market and how they can compete in it.

Raising capital through a public offering can help with an expansion or the launch of a new business. In Nevada, there are three ways to accomplish this: registration by filing, registration in coordination with the U.S. Securities and Exchange Commission (SEC); and an intrastate registration by qualification.

The “registration by qualification” process is business friendly. This is a cost-effective alternative to a national IPO. It takes only a couple of months to process and you can theoretically raise an unlimited amount of capital. The benefit of this process is that as properly qualified officer or director of the company, you can approach investors – anyone living in Nevada – through telephone calls, direct mail, seminars, and advertising.

As with any capital mechanism, a business owner needs to determine the risks and costs associated with the venture. For a variety of reasons, the securities markets provide an excellent source of capital for small business. But accessing that capital presents small and large business alike the responsibility of compliance with applicable securities laws. Understanding those laws is the first step toward raising capital, and the Nevada Secretary of State, Securities Division is committed to helping legitimate businesses, after they have consulted with their won attorney and accountant, chart an appropriate course in gaining assess to public capital.

The content of this post was provided in its entirety by the Nevada Commission on Economic Development and is used by permission.