Tips for Raising Capital for Your Small Business

You have a great idea and you are ready to start your business. You’ve done all the research and learned the intricacies of business management. To put this into practice, you need to have money to invest. Raising capital for your small business can be a daunting exercise unless you know how to approach potential investors. As a first step in raising capital for your small business, find out the capital needed to start the business. Your business plan should highlight this.

Whether you intend to raise money from a financial institution or from your family and friends, you should approach them professionally. Equipped with a detailed business plan, you need to impress them with your capabilities and the prospects for your business. No one would like to lend you money out of friendship.

In the case of family or friends, you can ask them to be financiers or investors, depending on the amount of money you need. If the money is given as a loan, you will have to repay the principal and perhaps the interest as well. An investor needs to be paid a previously decided part of the profits. He may even offer you a partnership in his small business. It is always advisable to approach investors with a detailed proposal.

Your creditworthiness plays an important role in obtaining funds for your small business from banks. Even if you have a great and compelling business plan, banks won’t risk money with you if you have bad credit. Your creditworthiness makes you eligible for personal loans. This, along with a comprehensive business plan, will make you a likely business loan candidate.

Banks consider business loans, especially those for small businesses, to be risky. Most banks will be reluctant to grant unsecured loans. The riskier your business is, the more difficult it will be to obtain loans. So when you approach banks for business loans, be prepared with a plan for paying the money back.

Another option is to find an angel investor or venture capitalist to invest in your small business. These are people who have the money and willingness to invest in a business, to help the business owner set up and run the business, and earn some money while doing it. You can join forums that allow investment seekers to make their case to a large number of potential investors.

Angel investors often hold meetings to explore and identify potential investment opportunities. It is not an easy task to convince these astute investors. You may need to present your business plan and revenue model to a panel of experts. You may need to be prepared to face a barrage of questions.

This is because while angel investors and venture capitalists are ready to take risks, they will only take them knowingly. If you can impress them with your presentation and give appropriate, learned responses to their queries, your chances of raising capital for your small business are greater. However, once they decide to invest money, they may not allow you to run the business on your own. These investors are likely to demand some ownership and control of your business. Also, if you can show them an exit route after a certain amount of time, they will be more than happy to invest in your small business.

Another easy but difficult option for small business owners to obtain working capital is equity reinvestment. Invest the profits you made from your business back into it, instead of indulging in substantial paychecks.

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