The best way to build a small business and gain financial security is by financing through cash flow. This has always been Merri’s and my approach to financial security, but in early days I found myself raising extra capital abroad several times. I have also helped numerous businesses raise money to get started. This report shares several experiences to give a thumbnail sketch of how to raise money abroad.
There are two benefits from knowing how to raise money independently. First it gives you access to capital if you need it. Second the process of raising capital is similar to getting customers so this report can help you gain clients as well as seed money from around the world.
Financing a London House
This first lesson reviews the importance of flexible thinking in your efforts to raise start up cash. I learned this importance in my attempt to finance a house purchase in London. My business plan was to create a small office – apartment complex and the process of getting started taught me the importance of being creative.
I stumbled when I started asking for the money to buy this house but with luck and flexibility I was able to get the deal done. The search for cash began at a friendly bank who had lent to me before.
While there I learned how policy-oriented such institutions are. Whatever drops from the corporate headquarters above, is! The deal I had put together was aimed at helping overseas businesses people have an office and a place to stay when they were in London. The deal was set up as a club something like a timeshare. Not quite a timeshare but close enough.
My track record with the bank was good and I had always repaid loans. Yet the policy at that bank was “timeshares are no-nos”. I could almost see the glaze come over my bank manager’s eyes as I explained the project. It was the look that said “No matter what you say, the answer will be NO”. Once a manager thinks that what you want is against company policy, it is better to do something realistic like climb Mount Everest on a lunch break.
After making the necessary polite motions [I figured I might want to borrow for something else later] and letting him do likewise, I thanked him for his time and was preparing to leave. I wasn’t even going to ask him to officially write and say NO. I knew he was going to say “No” before I left his office.
But as I started to leave he said, “By the way let me show you our new American Express Gold Card plan”. The bank had just started to offer credit cards and they came with a 7,500 pound unsecured overdraft.
Overdrafts are a peculiarly British line of credit that allows you to borrow up to the limit of the overdraft without any regular payment plan. The banker sort of expects to see the amount borrowed rise and fall. The borrower just pays interest on whatever amount is owed and on occasion the bank reviews the overdraft with you.
At that time one pound equaled about 2.2 dollars so this meant that everyone who obtained this credit card received a $16,500 dollar unsecured line of credit. $15,000 was the amount I was charging each member who joined my London office-apartment club!
I wanted 50 members at $15,000 each which was double the $375,000 I needed to buy and develop the property.
My head was spinning as I left the bank. The bank would not give me a $375,000 loan secured by property. Yet they would lend my buyers the full price of membership on an unsecured basis! All I needed was get half my buyers right now on a nothing down pre-purchase deal. This is exactly what I did.
I hustled out, called my customers and offered them this deal they could not refuse. “Join our club now and you get an American Express gold card, plus the bank will lend you the money unsecured for your club membership. Pay it back when you can.”
This was much better deal for me than borrowing the money to start. The original 25 sales were financed by the bank but my customers had the credit risk and had to pay the money back, not me.
From that time forward whenever I think finance, I look far beyond just making a loan. There are numerous ways to skin the “start-up capital” cat and whenever you can do it through easy sales, you are better off. You may be able to obtain credit from suppliers or let your buyers use their credit to get you what you want.
This is one of many ways I have helped readers raise money abroad. There are so many examples I have created a report entitled “How to Fund a Micro Business” which sharers ideas on how we have helped raise money abroad.