Venture Capital - the Small Business Loan Alternative

A Home Business Article Contributed by Sharon Hill

Venture Capital Small Business Loan

When it comes to securing a small business loan, venture capitalism is rare. In fact, statistics show that only one in five thousand firms qualify for venture capitalist funding. But if you've tried the standard routes and not found a lender you may want to peruse this alternative.

What is Venture Capitalism? do They Offer Small Business Loans?

In a nutshell, venture capitalism is about wealthy business people who assume a high risk in hopes of a high return. While initially venture capitalists were about helping folks grow start-up companies small or large, they are increasing looking for folks with a proven track record. This does not, however, suggest, you the new, small business owner, should not approach them for a loan.

What do Venture Capitalists Want from You before They Give You That Small Business Loan?

At this point in time, venture capitalist small business loans are more often than not in the fields of software, hardware, pharmaceuticals, media, telecommunications, and healthcare. They would like to see a business plan that indicates that your five year goal includes a plan to go public. Proprietary services and products are attractive to venture capitalists. Indications of this include trademarks, copyrights and patents.

Also, if you have a contract with the manufacturer of your product or service that provides you with an exclusive sales territory your firm look more attractive to a venture capitalist.

How do Venture Capitalists Dole out Your Small Business Loan?

Venture capitalist loan payments are not generally given out in one lump sum. Generally, there are six payments, what are referred to as stages. The first payment, the seed stage, is designated as start up and marketing funds. This is generally the smallest portion of the total loan package. Next follows the Start Up Stage payment, funds that allow you to work on developing your firm. First Stage that you'll be using the money for commercial production of your products or for marketing. The funds for this stage are not assumed for acquisition or expansion.

There are two final stages - the Later Stage and the Second Stage, both assuming a fully operation firm but one that still needs funding for expansion. At this point you've begun production but may or may not be actually making a profit. There is a possible Third Stage payment that provides funding for a major expansion at the point at which yours is a profitable or at least break even firm. This stage assumes your firm has started production of your products or services and has at least some basic marketing in place.

An alternate, but similar choice to help finance your small business , is called an angel investor. Where these folks differ from venture capitalists is that they are wealthy individuals rather than partnerships or corporations. Unlike venture capitalists, who may assume the role of limited partner, angel investors have no management say in how your firm is run.