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Question added to topic MoneyDecember 2, 2008

What fees should I expect to pay to receive help finding financing or investors for my business plan?

I have an investment company who wants to put together a financing package either through banking or angel investors. This company requires a fee of 2.77 percent of the total financing package put together. They require 10 percent of this fee to be paid up front.

The project they are offering to do for me would require about $750,000 total financing, part of which would be a credit line for operations. The 10 percent part of the fee comes out to about $2500. My concern is whether this is common to this industry. I do not like paying for services before they are rendered, especially where this portion of the payment is non-refundable.

I would like to know if the 2.77 percent is high or low for services such as are to be rendered and is it common to have to pay a portion up front.

There was a time when most people used the traditional Lehman formula, which was 5 percent for the first million, 4 percent for the second, 3 percent for the third, 2 percent for the fourth, and 1 percent for everything thereafter. You can google Lehman formula to get more on that.

Nowadays, these deals go all over the map. There is little or no regulation, and little or no standards.

And that was true even before the latest financial crisis. It's even more chaotic right now. Investment activity hasn't stopped, but it has slowed a great deal, so it's very much a buyer's market.

Make sure you have a good relationship with an attorney too. You're in shark-infested waters. And I'm not saying there's anything wrong with the specific deal you're looking at, I'm not an attorney and haven't even seen it, so how would I know. What I am saying, simply, is be very careful.

Tim Berry is the president of Palo Alto Software Inc., based in Eugene, Ore., which produces business planning software. He is also the author of 3 Weeks to Startup and The Plan-As-You-Go Business Plan, published by Entrepreneur Press.

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