Finding Funding Online

By Adam Stone | Posted June 06, 2003

The Internet is bursting with helpful sites promising to steer small-business owners toward the loans or to hook them up with investors. The sites are easy enough to find — but buyer beware. Experts in the field of small-business financing say it is wise to proceed with caution.

"What you don't know when you are out there in Internet land is who actually has money, and who is looking to set themselves up as a middleman," said John Taylor, vice president of research at the National Venture Capital Association. "You need to know who you are doing business with. A web site is only as good as the people behind it."

Taylor's association makes it easy to go right to the source. The association Web site offers detailed information on all its members, along with links directly to the venture capitalists' web sites.

Sometimes it's easy to tell who stands behind a site. If it's a "dot-gov" domain, the people behind it are the U.S. government, and when it comes to small business financing, they are ready to offer information galore. The Small Business Administration's financing page is a veritable library intended to introduce the entrepreneur to the world of financing, especially the SBA's own loan products.

Many states likewise offer financing information and applications through their economic-development departments. Virginia for instance offers online information about its loan guarantee program, economic development loan fund, and various other funding mechanisms.

Leave the government realm, however, and it can be hard sometimes to tell who's running the show, especially when all you are looking at is a search engine or a fill-in-the-blanks form. Take for instance a site like Small Business Financing, which asks visitors to divulge some fairly detailed contact information just to get the ball rolling. This will no doubt make some visitors ill at ease.

Other services are a bit more forthcoming. Entrepreneur Magazine for instance offers an online venture-capital search engineand delivers up front both a sample of the product and a detailed pricing structure.

In some cases, an online site will represent the offerings of a single vendor, as for instance the Small Business Lending Corporation, which is dedicated to the products of a lender called CIT Group. Here too it is pretty easy to understand which way is up.

For the most part, online financing information involves database searches, as for instance the search function at BudinessFinance.com. Users can search for free according to their particular needs: Credit lines, asset-based lending, commercial mortgages and so on. Likewise, vFinance.com offers powerful search tools meant to match entrepreneurs with angel investors and venture capitalists who may share similar interests.

With all these resources readily available, it is easy to just start clicking away — but that may not get you too far. A list of names, after all, is only a first step toward financing.

"The Internet can give you great data, which helps you to identify your targets, but then you want to find people who can give you an introduction to those targets," said Andy Jones, a general partner with Boulder Ventures, a venture fund with over $250 million under management. Jones says a cold call based on an internet search likely will not get any venture capitalist too excited about an entrepreneur's ideas.

Taylor too says the online search must be tied to a personal connection. "The classic venture capital model is very much a relationship model, an eyeball-to-eyeball kind of thing," he said. "If an investor is going to deal with a company, they want to know who they are dealing with."

That being said, an Internet search still can provide a useful starting point. Combine a personal contact with geographic proximity, said Jones, and things start to come together. "Say I am a small-business owner in Maryland," he said. "I can use the internet to come up with five or six venture capital firms in the area. From there I can call some lawyers that I know at a downtown law firm and see who they know over there." If those professionals can make an introduction, things may start to come together.

Finally, Jones said, the usual Internet caveat applies when searching for business financing.

"If it looks too good to be true," he said, "it probably is."

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!

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