Need Serious Capital?
On the other hand, you may need serious capital to buy a computer, modem, fax machine, printer or copier — and then there’s the scanner, software and ergonomically engineered desk chair. Maybe you need startup capital to get your company off the ground, or to expand your business and transform a one-time supermarket into a factory and showroom space.
     Whatever your goal, if it requires money you don’t have, then you’ll have to at least wade into that vast sea of opportunity and uncertainty known as “business financing.”

Prepare Yourself
Of course, you’ll barely get your feet wet if you’re only navigating the shallow waters between yourself and Great-Uncle Opulent. But expect total immersion when you have to swim to the lifeboats of strangers, such as financial institutions and private investors.
     These folks are unlikely to haul you aboard until you’ve cleaned out your own savings and exhausted your personal credit, until your friends and relatives have insisted you not darken their doorsteps (except to pay them back, with interest).
     Even then, Friendly Frigate Financial Services may simply throw you a life preserver and send you paddling in the direction of suppliers and other businesses you deal with.
     The ocean may look calm, but the waters hold many strange and wonderful creatures. It’s best you know what lurks beneath the surface before you venture into the briny deep.

Favorable Terms for Staying Afloat
Your business plan is your life raft in the financing journey. It is impossible to overemphasize the importance of a solid, up-to-date business plan in any financial appeal. Without one, you might as well ask prospective lenders and investors to dump their money overboard and watch you thrash around trying to gather it up.
     Angels, broadly, are investors willing to take a chance on you for one reason or another. Motivated less by the expectation of lucrative returns than by confidence in or affection for you, angel investors might include your mom, sorority sister or fifth-grade teacher (who “knew by the way you sharpened your pencils that you were destined for greatness”).
     More specifically, angel investors are well-to-do individuals with investment motivations that include, but go beyond, making money. Some seek to help disadvantaged groups; others are interested in particular types of companies. An angel investor looking for a “hobby” may help you financially in return for an unofficial partnership.
     Such angels are elusive — they don’t advertise — but if you’re lucky enough to find and persuade one, you’ll probably get a lot more than money in the bargain. An angel’s experience and expertise, personal and business contacts, enthusiasm and support can be more valuable than mere cash.

Talk the Talk
Seed capital is a loan or investment used for research and development, including, for example, preparing a business plan or building a prototype. Bestowed on businesses that can’t yet call themselves businesses, seed capital is hard to get because of the high risk involved.
     Stages of funding, beyond seed capital, are startup, first-stage, second-stage, third-stage (or mezzanine), and fourth-stage (or bridge) financing. An additional stage might be going public — registering securities and selling them through stock brokerages or investment-banking firms in the form of debt or equity (bonds or stock).
     Each successive funding stage demands greater stability on the business’s part and entails less risk for the investor or lender. To obtain financing beyond the startup phase, your company must demonstrate responsible management and accounting practices and generate actual customers or clients.
     Third-stage or mezzanine financing is often a hybrid of debt — money your company borrows — and equity — money exchanged for part-ownership of the business. Bridge financing is generally a stepping stone to long-term financing or going public.

Next week: Swimming with sharks, collecting clams: Strategies of successful borrowers

An editor since the age of six, when she returned a love letter with corrections marked in red, Mary Campbell writes and edits for The University of Arizona College of Business and Public Administration and for dozens of entrepreneurs, publishers, and authors. She is editor of the midsized-business journal The FINOVA Quarterly.