How to Acquire Long-Term Financing From Two Major Sources


Long-term financing is a loan, often acquired on interest, with a payback period of one year or more. A home or a property bought on a mortgage, where a loan is repaid over a long period of time, is an example of long-term financing. Long-term loans also are made to start or expand a business. For businesses, the two major sources of long-term financing are bank loans and venture capital. Venture capitalists are third-party investors willing to offer a loan to a business and expect returns on their investments.

Applying for a Bank Loan

Fill out a bank loan application. A loan application form will need business, ownership and financial information. All information provided in the form should be supported with corresponding documents of proof.

Prepare a detailed and well-researched business plan. A business plan typically includes an executive summary, company description, organizational structure, product description, marketing plan, operational plan, startup costs, and resource budgeting. A credible business plan will demonstrate your ability to run and manage a profitable business and will explain the reasons why you need a loan.

Enclose personal financial statements and credit reports in the loan application material. Especially if you're starting a new business, statements of personal finance will have a major influence in acquiring long-term financing from a bank.

Show assets as collateral for the loan. The value of assets you can use for a long-term loan depends on several factors, including the length and the amount of loan being issued. Typically, ownership documents of tangible assets such as property or equipment are submitted in order to obtain long-term financing for a business.

Find a guarantor who is willing to sponsor your for a loan. A guarantor is someone who puts his own tangible assets as collateral to help you get a bank loan. Banks especially will insist new business ventures to produce a guarantor.

Raising Venture Capital

Make a good business plan just as you did in Section 1. Similar to banks, venture capitalists will also expect a thorough and credible business plan.

Prepare a strong business pitch. Either in writing or across the table, venture capitalists will want to hear a business idea that works and can make returns on investment.

Find a venture capitalist who is right for you. Most venture capitalists are strategic investors who look to invest in a specific business idea, product or an industry. Also, while some venture capitalists will invest in new business, others are more to likely invest in already established businesses. Some venture capitalists invest in a business to become partners and have a degree of say in how the business is run. Venture capitalists don't usually investment money in unfamiliar places. A reasonable way to find an investor is to build business relationships over time. In many cases, middlemen such as lawyers or investment brokers introduce businesses to potential venture capitalists.

Negotiate a good deal. Many venture capitalists look for about 20 percent return on their investment, and the greater the risk of investment, the higher will be the expected rate of return for investors. Venture capitalists will usually receive an additional 2 percent for a management fee. Legal counseling or brokerage is essential in laying out the terms and conditions of a venture capital investment.

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