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Raising capital to start a new business may seem like a daunting task, but it
need not be overwhelming if you follow a few basic business practices. If you
have a viable idea that will net a return for your investors and prepare a
compelling business plan the chances are good that you can find investors to
join you.
Your first task is to create a business plan, sometimes known as a “business
proposal” or “prospectus.” Your business plan needs to be very detailed and
concise. You should include information about your educational background,
experience and training in the area of business you are contemplating. Just like
a resume for a job, include references and any other favorable personal
qualities that you feel reinforce the reasons why an investor should trust in
your ideas.
It can’t hurt to include any information you feel comfortable sharing with
regard to your positive credit history. If you have records of various satisfied
loans along with the payment history, that information could be helpful to prove
your stability with regard to financial obligations.
If you are requesting financing for an existing business the rules are a bit
different than a new business startup. The current owner should be able to
provide you with profit and loss statements. If you are purchasing an online
business, statistical information pertaining to traffic, number of units sold
and paid advertising are definitely necessary. The purchase price of the
business needs to be included along with detailed information about how you
intend to service the debt as well as how the potential investor will benefit
from your request.
If you are seeking investors for a new business, the information required
increases. In addition to the information outlined above, you will need to
include market research, projected costs and a detailed summary of how you
intend to generate income. This information needs to be projected for a period
of three to five years. It’s a good idea to project your expenses on the high
side.
Have some idea of what you expect to pay your investor. The only reason someone
is going to lend you money is if they can see decent profits in exchange for
lending it to you. Your market research had best substantiate that your plan is
viable and will provide them with sufficient return on investment to justify
their involvement.
Before you begin your search for investors, it’s a good idea to have an attorney
and/or accountant take a look at your plan. A good professional may suggest
specific points that you may have overlooked.
Once your paperwork is in order, it’s time to start looking for investors. One
place to begin your search might be friends or family. You might approach them
singularly or in a group. Whatever method, you need to have a complete copy of
your proposal carefully outlining your research and what they can expect in
return for their assistance.
Read the classified pages of your local newspaper. Venture capitalists often
advertise this way. Their rates are usually pretty high because they have a
tendency to take on “risky” investments. A twist on this method might be to run
your own ad either locally or nationally. If you select this method, explain the
particulars and emphasize how much they can expect to receive for the load of
their funds.
Use local business directories to find companies that specialize in “investment
services.” You can approach a local bank, but try and find a bank that
specializes in industrial or business type loans.
You might consider incorporating and selling stock in the company.
Another option might be a “money broker.” This can be risky. There are some
legitimate brokers and others who operate on the shady side.
Be creative. If you believe in your idea, don’t be afraid to do what ever it
takes to launch. There are plenty of ways to come up with the capital you need.
Think outside the box. Whether you are looking for $300 or $300,000 the money is
there you just need to dig for it.
Article Courtesy of the
Commercial Mortgage Guide
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