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What our members have to say...
"I was (and still am) a registered entrepreneur through this site and managed to set up with the help of someone who liked my proposal. I set up a property company which is beginning to take off thanks to help from this site."
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Paul Kewley |
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Locating Capital for Your Small Business
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Starting a new business can be very complicated and stressful. One of the most difficult phases for most people is finding financing for this new endeavor. The following article will give you ways on finding money to start your new business.
Just because you are a small business starting does not mean you are out of luck when it comes to raising money from traditional sources. In fact, banks and investors generally don't care what size your business is, as long as your making money.
There are several options available to your when try to locate financing for your small business. Some methods of raising funds are less difficult than others, all do require you to answer the following these questions:
· What are you going to use the money for? You must know exactly where the money will be used. Carefully identify the areas where money will go into your business. You must be specific.
· How much money will you need? You must calculate your needs from initial startup and into your first several months. Have a realistic view of what you will need. Many businesses fail because the money runs out before the business shows a profit.
· How are you going to pay the money back? You must have adequate cash flow from your business to be able to repay the money from your source. Use realistic financial projections to show your expected cash flow.
The following are six tested strategies for raising money for your small business:
· Your personal savings. The first place to look for capital is your own personal savings. If you do not believe in yourself why should a potential investor or bank. Personal savings usually consists of cash, stocks, and bonds, home equity, an insurance policy or a retirement plan. If you own securities, for example, you may be able to borrow against them by taking out a low-interest margin loan on the part of the mortgage that you have already paid off. You can also borrow against cash-value life insurance; your 401(K) retirement plan and your individual retirement plan (IRA).
· Take out a line of credit. Businesses often turn to short-term credit lines to finance working capital. If your company has been in business for several years and you are showing constant profits, you may be an excellent candidate for a line of credit. A credit line is different from a loan that locks you into monthly payments, it allows you to withdraw money when you need it, for example to cover this weeks payroll or to pay bills until a big check clears. You only pay interest on the money you borrow. While you may never use the line of credit, it will let you rest comfortably with the knowledge it is there.
· Use your credit cards. There have been many successful businesses that started out on credit cards. While banks generally want to see two or three year track record of profitability before you qualify for a loan, credit cards will give you money now. Beware though, the low introductory rates can be tempting, just keep in mind you will have to repay it after at rates in the high double digits. Credit cards should be used for routine purchases like office supplies and utility bills, not for computers and office furniture.
· Consider venture capital. To consider venture capital you will have to show you are a real winner. Venture capitalist are looking for good investment vehicles. They generally want a big part of the company and often take over major portions of the business. They generally do not do little investments and generally look for businesses with high-growth potential. You have to really impress them.
· Consider angel investors or private investors. An angel investor is a person looking for good investments to make. Overall, angels are not loan-makers, they are investors. As such, the degree of control and terms under which you receives seed money for your business will depend on the arrangement brokered between you and your angel. The key to finding an angel in your area is networking.
· Look into a Small Business Administration (SBA) micro loan. These loans are administrated by non-profit organizations that want to promote economic development in your area. Contact your regional SBA officer for more information on this type of loan.
In conclusion, it really all comes down to networking. Get your name and business idea out into the real world. Get your business plan together, be aggressive, and you can get the money you need for your small business to succeed.
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