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This topic is interesting to discuss actually.

Most entrepenuer will seek many ways to raise money when they are inneed. This is totally WRONG. Why? Learn from the rich.

Financial Constraint Doesn’t Help To Get Credit

When you ask for venture capitalists normally they will study the business plan and will invest if they can see the bright way ahead. See, financiers have this strange notion that they should get their money back, along with a reasonable risk-adjusted return. That’s why strong businesses have more financing options, enjoy lower interest rates and suffer fewer restrictions, while weaker ones go wanting.

Small businesses will seek out for money when they stuck to pay the wages, bills and etc. Usually when they ask for finance, the business will get easily rejected if based on their financial statements and background.

Normally if the business put their asset or we call it mortgage, they will be under a big distress to meet the repayment term to ensure that the asset will not be taken back by the bank or lenders.

Rather than wait for disaster to strike, take some precautions. Here are the four steps:

Act now. If you fear rough waters ahead (or at least a measurable, short-term dip), draw down your credit line before your bank cancels it. You may end up paying interest on unused funds, but it’s better than not having them when credit gets tight.

Pig out. Raise as much capital as you can as early as you can. Sometimes start-ups have an easier time selling the dream than a few quarters worth of reality. And even if you don’t think you can drive a hard bargain, don’t sell your company short: The first assessment of what your business is worth will color the valuation in later financing rounds. If you disagree with an investor’s valuation, avoid bickering about the specific dollar amount. Instead, address the assumptions that went into the valuation, like projected growth rates and overall industry prospects.

Stress test. Speaking of projections, don’t fall in love with yours. Run a host of scenarios, and make sure you can weather the worst of the bunch.

Manage by metric. Develop leading indicators that will warn of impending crises so that you can tap resources long before you obviously need them.

So learn a good lesson today? When your business are in the good position then ask for the financial facilities and don’t wait until the business get distress. Come out clean and you will be smarter than the lenders.

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