Finding Investors for a Small Business
Small businesses can find financing from angel investors, venture capital, government incentives, grants, and loans.
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Home-based business owners and start-up business entrepreneurs often need cash to get their ventures going. For them, personal savings or private loans may be sufficient to start, but a business cannot grow to a regional, national and international scale, unless an infusion of cash makes marketing, merchandising, production and delivery possible. Finding investors for a small business--when all other financing options are exhausted--can be difficult, but there are a number of steps you can take to improve your odds of getting the financing you need.
Write a Business Plan
Your business plan is the calling card you present to prospective investors. In order to entice a financier to invest in your business---as opposed to any other business that might have asked for financial support---you need to explain why your business will make the investor money and why it is a better risk to invest the money in your venture. The more thorough the business plan, the better the odds of getting the money. Include, among other details, a market analysis coupled with an industry analysis, a workable advertising strategy, the extent of the business's Internet presence, and long-term as well as short-term financial plans.
Venture Capital Firms
Look for investors at venture capital firms. These investors traditionally back technology-based businesses that promise a quick return on investment. Be prepared to part with a lot of company stock in exchange for that initial investment. In order to be accepted, your business plan must show that the technology you are dealing with is so new--or will be in such demand once introduced--that rapid company growth and income are virtually guaranteed. Moreover, the plan must explain arrangements for aggressive growth within the technological sector once the company gets off the ground. One place to start looking for a venture capital investor is the National Venture Capital Association.
Discuss your business within your sphere of influence. Talk to people in your circle of friends and in your immediate and extended family, in your faith community, at your job, or anywhere else where you are known. Keep in mind that private investors of this kind will consider your business plan secondarily, while your reputation in the community weighs heavier. If you have a good reputation, are known for your business savvy, and do not have outstanding personal loans to friends or family members, you may be able to rally a number of private investors to help you get started. These investments usually take the form of small to mid-sized loans, so the odds are good that you will have to approach a large number of individuals. Put everything in writing, and make payments to your investors on time.
Work with the Small Business Administration
The Small Business Administration (SBA) offers a referral service for entrepreneurs in need of financial assistance. Under the umbrella of the Small Business Investment Company, the SBA brings together screened companies that are willing to take a risk on start-up businesses of a wide variety. Special programs are open to rural and young entrepreneurs, as well as those in the inner cities.
Do not discount angel investors. These are private individuals or companies willing to part with as little as $25,000 or as much as $1 million in an effort to make a sizable return on their investments. Unlike venture capitalists, speed of the return on investment is not nearly as crucial as size, and if you anticipate a slow but steady upward trend in your business, angel investors may be the right choice for you. Prepare your business plan and highlight the projected growth as well as the potential for income over the course of the next decade. Remember that some angel investors are little more than retirees who are looking to your business to provide for a portion of their nest egg over a decade or more.