There are several traditional ways of raising capital for owners of private businesses. Here we name a few:
Personal Savings and Assets
Be careful of putting all of your eggs into one basket. Make sure that you are able to provide for your needs during the growing stages of the business. Create a good business plan and spend the time necessary in researching systems, products, and in networking with people who have your best interests at heart.
Family and Friends
Many businesses get started with the help of friends and family. Ironically, these do-gooders often charge us the least about of interest, but the most amount of headaches at family reunions. We suggest that, should you choose this route, you make the agreements clear and well explained. Only offer what you are willing to give should things not go as you plan them and should things go better than you plan them.
Private Placement Offerings
These agreements are effective in providing the resources necessary to help small businesses grow. The problem is that business owners cannot advertise that they are looking for capital through a private placement. That's why it is private. This means business owners can only offer the private placement memorandum with people who are familiar with the company or its officers. The other stipulation is that those people be accredited investors. This means that they must have a net worth of more than a million dollars. So, even though this option of raising capital is often the most sought after by business owners, it is usually the most difficult to obtain.
Angel Investors and Venture Capitalists
These accredited investors are often loaded with money are many times are willing to provide large amounts of money to help business owners buy inventory, start an online presence, or expand to additional locations. The problem with many of them is that, because they are helping business owners in a significant manner, they also feel, and often rightly so, that they deserve to be significantly compensated for doing so. Sometimes they will require either a large amount of interest or a large percent of the company and/or its profits. On a positive note, many of them are not interested in the day-to-day activities of the business, and allow you to run things as you did before receiving the investment, although periodic checkups and reviews are common.
Bank loans are great options for businesses that already own inventory and/or real estate that they can utilize as collateral. Trying to obtain a bank loan with little or no collateral, however, is next to impossible. The Small Business Administration can provide assistance in some cases, although the applications are can be extensive and the agreements for making interest payments can be cumbersome. Getting someone you trust and who trusts you to co-sign on a loan for you is an option, but be careful to make signed agreements with each other as to who will make payments, when, and what will happen if payments cannot be made.
These are a few of the traditional ways for private business
owners to raise
capital. To learn more about the best way to receive capital, contact a
representative of the Independent