Raising Business Capital from Investors

There is no doubt that the time when you could go to the bank and fairly easily get an SBA or other type of small business loan is over. Between the overall credit crunch generally, and SBA cutbacks specifically (more than 50% fewer loans than just a few years ago), home-based entrepreneurs are stuck trying to figure out where to go to get the money they need to start and grow their businesses.

So what do you do if you need capital for your business right now? Consider the most tried-and true of all small business fundraising methods — the outside investor. Whether you need $2,500 or $25,000, there are still people out there willing to lend you money.

Lending to a viable home-based small business affords an investor the chance to get a significantly higher rate of return; 10% is not uncommon in such situations, maybe even more. If this idea appeals to you, then understand that finding the right investor is a two-step process.

Step One: Have a Great Business Plan

No investor will put money into your business based on the idea alone. You need a business plan. It need not be super elaborate, but just know that the more professional your plan, the more legitimate you look.

You can draft the plan on your own, but it is probably wiser to use some business planning software. Either way, you will need facts, figures, stats, and plans to back up your rosy rhetoric. If you already have a business, then you will need to include profit and loss statements, and if not, you will need solid projections based on real facts.

You then need to know what is in your plan, cold. That means that you:
  • Understand the market;
  • Know your numbers inside out;
  • Know the competition;
  • Have a strong advertising program;
  • Have legitimate projections;
  • and are able to defend your plan;

Step Two: Find an Investor

Armed with a great plan, you then must go out and start knocking on doors. You will likely need to talk to a lot of people before getting the money you need. Understand that with a business plan, a good idea, a winning smile, and little else, you represent both peril and promise for any would-be investor. The peril is that you could take their money and lose it on a misadventure. The promise is that you could take their money and make them wealthier with your great idea. Your challenge is to prove that the latter is more far more likely to occur than the former.

Not a few partnerships have begun because one person had the idea, skills, experience, or opportunity, while the other had the money. Of course you will have to give up some of your equity, but that is a little price to pay to get to live the dream.

The question you undoubtedly have is: where to find that magic investor or partner? There are several sources:

  • Start by networking. Speak with your lawyer, accountant, and other business associates. Talk to friends, family, colleagues, and people where you worship. Get the word out. Networking works.
  • Speak with suppliers and distributors as they may know people in the field who are looking for an opportunity.
  • Speak with people in your line of work who have retired. They may want to either get back on the saddle or become a passive investor/partner.
  • Conduct an Internet search.
  • Put an ad in the paper under the section “capital needed.” Scour the “capital available” section as well.

Once you find a possible investor or partner, then it is time to go over your plan. If they like it, congratulations, and if not, keep knocking! Don’t worry; if you have a viable business, someone will want to make money off of it. Finally, remember to put any agreement in writing. Hiring a lawyer to draft the agreement would be a wise move. HBM



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