1. Write a business proposal as if you were going to write one to obtain a loan from a banker. Discuss what the business does, the market demand for the product or service, how you intend to market your product or service, include financial projections: in what time frame do you anticipate the business will be making a profit. Include financial statements and tax returns.
2. State how much money you need, what the money will be used for and the terms of the loan such as the interest rate, how you intend to pay the loan back whether this be in a lump sum or in scheduled payments. You should also state whether the loan is secure, that in the event you are unable to pay the loan the lender will have a percentage of ownership in the business. In making your proposal more attractive to the lender you may consider having a promissory note or agreement stating the financial terms, scheduled payments and entitlement to the business in the event the note is not paid.
3. Don’t forget the tax benefits in using a promissory note, if for some reason you are unable to repay the loan in full, the lender will be entitled to a tax deduction known as “bad debt”. Warren Buffet who is now the second richest person in the world with an estimated net worth of 40Billion, raised $105,000 for his first business from 7 partners, two of which were his sister and aunt.
Equity in Exchange for Expertise