Despite what you might see on late-night infomercials or some websites, none of the SBA's loan programs involve free money, government grants or no-interest loans. In fact, the SBA doesn't even lend funds directly to entrepreneurs--you'll need to strike up a relationship with a loan officer at your local bank, credit union or nonprofit financial intermediary to access the programs.

But once you do, there's an array of resources aimed at getting you the capital you need to start or expand your small business. Last year, more than $50 million in SBA loans were being provided per dayto U.S. small businesses. For this month's column, I thought I'd review the latest descriptions and eligibility criteria for the SBA's three most popular loan programs.

7(a) Loan Program
The 7(a) is the SBA's most popular loan program. As a small-business owner, you can get up to $750,000 from your local 7(a) lender, backed by a partial guarantee from the SBA. Note that the SBA is not lending you any money directly. What they are doing is making it less risky for a local lender to provide you with financing. 7(a) loans are typically used for working capital, asset purchases and leasehold improvements. All the owners of a business who hold an ownership stake of 20 percent or more are required to personally guarantee the loan.

Once your lender decides that 7(a) money is what you need, you'll probably start hearing the names of the different 7(a) programs. For example if you're borrowing less than $150,000, you may be headed toward the Lowdoc program, which was created in 1993 to reduce burdensome paperwork. A Lowdoc loan application is a one-page form; your application is on one side and the lender's request to the SBA for the guaranty for your loan is on the other. The SBA responds to Lowdoc applications within 36 hours.

The SBA Express is a program for lenders with a good SBA-lending track record. It's aimed at getting money--in this case, as much as $250,000--quickly into the hands of entrepreneurs. Based on the success of the SBA Express program, the SBA initiated CommunityExpress, specifically designed to improve access to capital for low- and moderate-income entrepreneurs and to provide both pre- and post-loan technical assistance.

Eligibility: The eligibility criteria for the 7(a) program are the broadest of all the SBA loan programs, but they're still quite restrictive for startups and businesses related to financial services. See this pageon the SBA's website for a list of the types of business that are eligible. In general, all SBA programs are targeted at small companies (that is, businesses with less than $7 million in tangible net worth and less than $2.5 million in net income), but typically most banks won't lend to startup businesses that don't have two to three years' worth of financial statements and some owner's equity in the business. Some banks will allow you to use money from relatives as part of your equity, but you're required to formalize these loans with a repayment plan that's subordinate to the bank debt.

504 Loan Program
The 504 loan program is intended to supply funds for asset purchases, such as land or equipment. Typically, the asset purchase is funded by a loan from a bank or other lender in your area, along with a second loan from a certified development company (CDC) that's funded with an SBA guarantee for up to 40 percent of the value of the asset--which is generally a loan of up to $1 million--and a contribution of 10 percent from the equity of the borrower. This financing structure helps the primary lender--the bank--reduce its exposure by relying on the CDC and the SBA to shoulder much of the risk.

Eligibility: Like the 7(a) program, the 504 program is restricted to small businesses with less than $7 million in tangible net worth and less than $2.5 million in net income. However, since funds from 504 loans can't be used for working capital or inventory, consolidating or repaying debt, or refinancing, this program tends to exclude most service businesses that need to purchase land or equipment. Personal guarantees are also required for 504 loans.

7(m) Microloan Program
The Microloan program is presently under budgetary review, and the political winds aren't currently blowing in its favor. The program is intended to provide "small" loans of up to $35,000 that can be used for a broad range of purposes to start and grow a business. Unlike the 7(a) program, the funds to be loaned don't come from banks; rather, they come directly from the SBA (now you know why it's unpopular with the folks in charge of the budget) and are administered to business owners via nonprofit community-based intermediaries. To find the name of an intermediary micro-lender in your area,visit this page of the SBA's website.

Eligibility: The Microloan program is startup friendly. All new businesses are eligible to apply. Although the maximum loan amount is $35,000, the average loan is approximately $10,000. The only catch is that Microloan borrowers typically have to enroll in technical assistance classes administered by the micro-lender intermediaries. For some entrepreneurs, this is a very helpful resource that provides cost-effective business training. Others, however, perceive it as a waste of time, although it's a necessary pre-condition to getting a Microloan.

Although I promised reviews of just the three top SBA loan programs, I didn't want to fail to mention two other special purpose loan programs targeted at serving particular types of businesses. The Export Working Capital Program provides short-term working capital to small, export businesses, and the DELTA program provides both financial and technical assistance to help businesses dependent on defense installations transition to civilian markets. You can log on to theSBA's website to learn more about these two programs.

The long and short of it is, if you need small-business loan capital, there's probably an SBA program out there for you.

Unless you have a track record of business success or excellent sales ability, the reality of fundraising for many first-time business owners is that it takes contacting at least four to five prospects before you can close your first investor. But this poses a challenge since most entrepreneurs need at least 10 investors to put together a meaningful round of funding--and the process of assembling 40 to 50 fundraising prospects is daunting. So what's an entrepreneur to do?

In previous columns, I've written about the process of identifying private investors and brainstorming a list of relatives, friends and business associates who'd be willing to support your venture. For this column, however, I want to focus on how to maximize your close rate with fundraising prospects. Because rather than expanding your prospecting list to 40 or 50 individuals, wouldn't it be better if you could increase your close rate from 25% to 75% so you need relatively fewer prospects to complete your round of funding?

I've picked up a few nuggets of wisdom about how to close a deal from my own fundraising experiences and from observing clients raise money. Here's my advice:

1. Pick a closing date, then don't enforce it. When raising large sums of money from venture capital firms and institutional investors, closing dates are critical. The interest income on $50 million is about $50,000 per week (which is approximately the same amount as the total legal fees on VC rounds), so the cost of a closing delay is a substantial. This explains why your lawyer will give you financing documentation for your startup round of funding that has a closing date clause.

In practice, angel investors and other individuals who'll support your business will ignore your closing date and send you the money when they feel like it. Unless you're convinced that your financing round will be oversubscribed by too much demand, your closing date is likely to be a moving target. Nevertheless, investors like to see a closing date because they like to feel that other investors are interested in your business and investing at the same time.

You should ask your lawyer to modify the standard closing date clause to read "The closing date is [some date in the near future] or another date that is mutually agreeable to both parties." This small change will keep the documentation valid for several weeks after the closing date in case your investor takes extra time to give you the funds.

One of the greatest challenges that entrepreneurs face is answering the question posed by your prospects, "How many other investors are committing money at this closing date?" The smart answer is to avoid giving an answer, since trying to close several individuals on the same date is a long shot.

2. Provide investment options. Flexibility is critical when dealing with non-institutional investors. Take-it-or-leave-it terms seldom work because the motivation for each investor will vary. Raising $10,000 from your close friends may involve different terms than say, raising $50,000 from a business associate. If you're raising money in the form of debt, it's better to offer two or three options for participation in the round: different amounts or thresholds, different time horizons, and different repayment schedules. If you're raising money in the form of equity, use convertible debt rather than preferred stock for your friends-and-family round, and be sure to provide some flexibility on the investment amount. Trying to enforce a minimum investment threshold of $25,000 or $50,000 will only work if you have several wealthy friends who have liquid funds available to invest.

3. Anticipate follow-up meetings. To keep the courtship process with investors moving forward, it's best to end each meeting with a definite plan for the next meeting. Even if you can tell your entire story in one meeting, it's better to spread it to two or three meetings since that might be how long it takes for the investor to get comfortable with you. It's also a good idea to schedule reference calls with your previous investors, partners, and/or board members to demonstrate that you have others involved with your venture who can vouch for you or your business. In my experience, it's best to make this introduction at the end of the courtship to help you close, rather than early in the process to help the investor conduct early due diligence.

4. Ask about doubts. At the second meeting, I find it's useful to end the meeting by asking the straightforward question: "What are your remaining doubts or concerns about making this investment?" The response to this question will usually indicate whether you'll be able to address those concerns or not. This information is also useful when prepping your reference partners for subsequent calls.

5. Stop selling. It's easy to get in the habit of selling. So much so, in fact, that the sales culture of fundraising can seep into your interactions with investors even after they've decided to invest and are simply waiting for the paperwork to be completed. Once they've made the decision to invest, step back and let the process happen without continuing to sell it.

6. Don't forget to ask for the check. When raising money, it's easy to get tied up in answering the questions posed by the investors, then get tied up in the negotiations and paperwork, then get tied up in making sure the relationship with your investor continues to be sound after the negotiations are complete. During all these interactions, it's also easy to forget that the purpose of the process is to get the money. You may find that you'll get the funding more quickly if you ask for it earlier. One way to ask for the check is to ask your investor whether he plans to make a wire transfer or send a personal check so you can decide if he needs to receive your bank wire transfer details. It might be presumptive to ask this question too early, but it tends to move the dialogue along very quickly. And remember, the deal isn't closed 'til the money's in the bank.

Have you ever been to a conference where selected entrepreneurs are invited to present their ideas to a panel of investors who then critique their chances of getting funded? If not, then you've really missed out--these meetings are probably one of the best ways aspiring entrepreneurs can get a glimpse of what professional investors are looking for in what they call a "fundable company."

Recently, the Software Council of Southern California asked if I'd like to attend their event, VentureNet, to see what the latest trends were. I eagerly accepted, but my interest was not so much in what was going on at the stage level, but in picking the brains of the professional investors to see what they'd say "behind the scenes." Now, before I share what I learned, let me just make a few qualifying statements:

1. Every professional investor has a slightly different perspective on what's important. Yes, there are some things we all seem to emphasize, but our differences can be extensive. Thus, this article represents the opinions of just the particular cross-section I happened to interview on this one occasion.
2. The individuals I interviewed were very candid and, to protect them from being "profiled" with any one statement, no direct quotes will be made.

The professional investors offering opinions from which this article was extracted include: David Cremin, managing director of DFJ Frontier; Michael Song, a partner with Rustic Canyon; Bill Collins, managing partner of Publex Ventures; and Robert Kibble, managing partner of Mission Ventures. Some additional comments and insights were also provided by Jon Kraft, chair of the Software Council of Southern California.

So what do these gentlemen prefer to see in a company before they get excited enough to write a check? What, if anything, has changed from what they used to look for during the dotcom craziness of the late 90s?

Here's what they said is important now:

Seasoning. They're looking for more experienced, older entrepreneurs who have "been there, done that." The time of investing in the 19-year old kid who's a tech-genius isn't necessarily gone, but the kid had better be able to find an older, seasoned executive to join his team.

Customers. Contrary to putting the emphasis on the team or the revenue numbers, there seemed to be a new emphasis on the customer:

• What compels them to buy thisproduct or service?
• What problems does this product or service solve? Why is it better than the alternatives?
• Why is it worth the price?
• Does it compel you to tell others about your experience?
• Are your customers asking if they can invest in your company?

Team. The team is still an important part of the equation, but the entrepreneur is just as important. Here's what the investors are looking for in both:

• Passion: The entrepreneur must demonstrate a contagious excitement about their vision for the company.
• Tenacity: The entrepreneur must prove they have the stamina and willpower to stay with their vision through thick and thin.
• Flexibility: The entrepreneur must be willing to reevaluate and refocus their plans when things don't work out as anticipated.
• Commitment: The entrepreneur must be willing to invest enough of their own money into this project to convince investors they're serious.
• Teamwork: The entrepreneur's team must prove they can work effectively together.
• Coachability: The entrepreneur and their team must be coachable. No team knows everything they need to know to succeed.
• Knowledge: Investors prefer to back teams that really know their market by having backgrounds that are rich and impressive in the market niche for which the company is engaged.

Opportunity. Investors want big ideas. Ideas that can change the world. Ideas that change our behavior, culture or way of thinking. Ideas that can build $100-million-size companies. Anything less is too speculative. The risks of investing in a company are so great--and the chances of a reward so small--that investors can't afford to bet on opportunities that won't surely have huge payoffs. And one of the biggest problems when addressing opportunity is "Am I too early?" Investing in a huge opportunity five years before the market will recognize and embrace it is a very frustrating thing. Not only will you lose your investment, you'll have to suffer the extreme frustration of watching someone else make a lot of money on the foundation you helped build.

Business Model. Will the numbers map out? In other words, once someone takes a sharp pencil and starts tracing where every revenue dollar comes from and then seriously challenges every expense it'll take to generate that revenue dollar, will you have:

• a profitable model?
• a repeatable model?
• an expandable model?
• a predictable model?
• a defensible model?

Many an entrepreneur fails because they don't know how to do this type of exercise with a "real world" view.

Well, there you have it: the latest and deepest thinking from a sample of professional investors. How do you and your company match up? If you were honest and found areas that were lacking,please find someone who can help you fix them before you approach anyone to invest. Your extra investment of time will significantly improve your chances for funding.