You, the small company owner, have put up your own money. Also, you can forget about trying out for Shark Tank (at least for now). Is there a plan for how you’ll go about acquiring this needed funding?
At critical junctures in their growth, small firms need access to extra capital. Typically, small company owners seek investors for two main reasons: initial investment and expansion money.
In the corporate world, speed is of the essence, and securing any investment can speed up your decision-making due to the increase in cash flow. While money is obviously a valuable asset, an investor may also bring other resources to the table, such as a new perspective and an additional business mind.
In other words, you’ve come to the perfect location if this is your first time looking for funding. The moment you enter “types of investors” into a search engine, you’ll be inundated with definitions that are in no particular sequence.
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1. Friends and Family
After the founder’s own money, friends and family are the next most frequent source of financing for a new business. It makes sense, since you won’t have to go through the hassle of other investments’ procedures. The fact that you won’t have to make monthly payments on an investment as you would with a loan is a huge plus.
Family and friends are much like any other investors in that they won’t get their money back until the company is successful. Remember that you are still engaging in business as usual. They have invested in the business and hence are also taking on part of the inherent risk of doing so. They may also have some say in running the company if their investment is substantial enough.
Don’t forget to provide your idea the same presentation you would give to a potential investor. Provide your business strategy and an estimate of when they may expect to see a return on their investment. Make sure they understand the dangers of investing if they’re not familiar with it.
Merging a professional and personal connection might have negative consequences. This is a danger in more ways than one. Before approaching close friends and family for financial support, you should carefully consider what may go wrong. Funding might be gained in several ways. Your loved ones are irreplaceable to you.
2. Angel Networks
You may locate an angel investor that is willing to not only finance your startup but also function as a mentor, providing sound advice and introducing you to their professional network. Angel Capital Association, Angel Investment Network, and Funded.com are all good places to start, since they each have hundreds of angel investors who list the kinds of investments they’re looking for.
Angel Capital Association provides a searchable database organized both geographically and by investment platform type to assist with locating a local angel investor. New York, Los Angeles, and Chicago are just a few of the cities where local business organizations have teamed up with angel investors to boost the startup scene.
3. Approach Local Business Owners
Talking to other company owners in your community might help you locate investors for your new venture. They have likely been in your shoes before, need financial backing, and may provide advice on how to get investors.
Local company owners may wish to put money into your firm if they see potential in your product or service. It’s OK to begin by requesting introductions to potential investors, but if the company owner shows interest, you shouldn’t be hesitant to sell them on your startups potential.
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4. Bootstrapping
To “bootstrap” is to finance one’s own business venture. Your personal savings may not be enough to fund the whole of your firm, but they may serve as a solid foundation while you seek for further funding down the road.
Investors are more likely to put money into a small firm if they believe the entrepreneur has something at stake. Investors want to know that you have faith enough in your company to put up some of your own cash. If you don’t have faith in the concept yourself, why should anybody else put their money on it?
In an interview with Business.com, Jeremy Halpern, a partner at Nutter and an angel investor in many food and beverage industry startups, said, “When a CEO founder is at personal risk, and their success is directly tied to the success of their company, they are more apt to persist, to innovate, and to adopt a run-through-brick-walls mentality.”
Take an honest look at your financial condition and determine if there is any way, however modest, that you can invest in your own concept. You may pay for a website for it and the fees associated with hosting and design. Those who are considering investing in your business will evaluate your level of personal commitment to your concept in relation to your current financial resources. If you put in 10% of your net worth, they will be more likely to put in 10% of their investing capacity.
5. Small Business Loans
A small company loan might be the solution to your finance woes.
Visiting your neighbourhood bank is the most logical first step to do. If you have been in company for some time, potential investors will be able to see that you have a history of sustained growth, increasing the likelihood that you will be accepted. Before approving a loan, banks need thorough documentation of the applicant’s financial situation. Make sure that all of your documentation is in order.
The SBA, or the United States Small Business Administration, is a federal body whose mission is to assist small companies throughout the country.
The SBA does not provide loans directly to businesses, but its website does have a lender matching service that may assist companies locate SBA-approved lenders. The Small Business Administration guarantees certain loans with more favourable conditions and lower interest rates for businesses.
The most significant drawback to taking out a business loan is the fact that you will have to pay it back over time, most likely with interest, regardless of how well your firm does.