Wednesday, October 19, 2011
Second Round Business Funding: What You Should Know
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When most
people think business plan and business funding, they think start ups. New businesses, with no
track record, looking for seed or start up capital.
However,
while that may be the most popular notion, when it comes to business funding,
it’s certainly not the first time that companies need to find funding!
In this
article, we look at second round business funding: funding to help you grow,
expand, and improve your existing business.
When Is Second Round Business Funding
Necessary?
The first
thing you need to find out about second round business funding is when you
might need it.
Traditionally,
companies apply for second round business funding when they have already
established their business, are successful, and are looking to take their
company to the next level.
Usually,
that means expanding into new markets, investing in tools or equipment that
allows them to expand capacity, or some other expansion designed to increase
revenues and profits.
Second round
business funding is NOT something you apply for because you’ve spend your first
capital investment, without achieving your start up goals! If you try to apply
for funding just because you’ve run out of money, you’re likely to find a lot
of doors closing in your face, very quickly!
Who Can You Approach for Second Round Business
Funding?
This is a
trickier question. In some cases, particularly if you have received business
finance from a bank or traditional lender, you might be able to approach your
loan account manager for second round funding, however, it may be tough to
convince them, and you would need collateral to secure the loan.
In many
cases, businesses looking for second round funding turn to venture capitalists
or angel investors, who are generally more willing to take an equity stake in
an up and coming company, and are less risk averse.
Sometimes,
you may even find companies in your industry, who are willing to take a stake
in your company, particularly if you offer complimentary products or services.
How Do You Apply for Second Round Funding?
Applying
for second round business funding is a lot like applying for the first loan or
investment you got. You’ll still need a business plan, you’ll still need to
pitch, and there’s still a lot of red tape involved.
This time
around, however, instead of selling your idea, you’ll be selling results. You
might include ideas – in the form of expansion plans and new markets or
products, but investors considering giving you second round business funding
will want to know how your company has been doing so far.
If you can
prove that you’ve grown significantly, that your products and services are in
demand, and that your team works well together, then you’re far more likely to
get second round business funding.
The Upside of Second Round Business Funding
The good
news for business owners looking for second round business funding is that this
time around, you’ll be on a much better footing, when it comes to negotiations.
Brand new
ideas, untested companies, and new entrepreneurs often have to give in more to
secure the first round funding they need to start their companies.
Entrepreneurs looking for second round business funding, who already have a
successful business that they want to grow, have more leverage at the
negotiation table – and probably more people willing to invest.
It’s not
unheard of for companies who self fund to successfully secure second round
business funding too, so if you’ve been working hard bootstrapping your
company, and it’s paid off, there’s every chance that the next growth phase of
your business could come from outside funding sources!
So if you
are looking for second round funding, start polishing up that business plan!
You’re going to need to prove just how great that idea turned out to be!
This post was written by: Franklin Manuel
Franklin Manuel is a professional blogger, web designer and front end web developer. Follow him on Twitter
