There are a variety of different types of investor that businesses looking for financial support can look towards for funding. Which type of investor a business owner should approach relies predominately on what kind of business it is, and how much money is needed.
An angel investor is a good option for start-up businesses, but can be very difficult to find. Angel investors are most often individuals with significant financial resources who invest into a business because they personally feel it has potential. In exchange for their funding, the angel investor normally gets a percentage on the return of their investment, or partial ownership of the company.
To find an angel investor, business owners should research who might be an ideal candidate, and work to make a credible connection with them. Avoid mentioning investment straight out; instead, work on building a relationship first and discussing money once a connection has been made. Try and find investors with a connection to your business, whether it be an interest in the product or just an interest in the location the business might be set up in. There are also websites that help start-ups make connections with angel investors.
Another way to source angel investors is through crowd funding websites like Pozible and Crowdfundit. On these websites you pitch your business concept, and other users can personally contribute to funding it, often in return for a sample of a product or some other benefit.
A bank loan is one of the most common and easy ways to get funding for your business, provided you have a good concept and a quality business plan. It works in the same way as most other bank loans, which you pay back with interest at a later date. To get a bank loan, your best bet is to follow the following five steps:
1) Know which loan you want
Do your research. Different banks offer different loans at different rates. Figure out which is the best one for you before you start applying. Applying for any loan you think you might get can damage your credit rating and ruin your chances of receiving another one in the future. Once you know which loan you like, make contact with the bank/s and ask them what you will need in order to apply for that loan.
2) Know your financial history
Before going for a loan, find out your credit history. Check your current rating, review your financial history and make sure it is accurate. Once you are familiar with your credit history, use this information to figure out exactly how much you are likely to be lent, and how much you can afford to borrow.
3) Get your documentation organised
Based on the advice you get from the bank, organise all of the documentation you will need prior to applying for a loan. Some of this can take time to secure, so don’t waste time by trying to apply for anything before you get it.
4) Have realistic expectations
If you have developed a realistic time schedule within your business plan, you will have factored in the time it takes to get a loan, and will be prepared for it. It takes time, and being rushed and unprepared is a sure way to reduce your chances of securing a loan.
5) Be Persistent
When you are talking to banks, many might be willing to give you a loan, but not with the terms you want. Call as many banks as you can- you will eventually find one that suits you, or that will want your business enough to work out a deal with you.
Personal investors are another good way for new business owners to get the capital they need when starting out. Friends or family members might be willing to contribute financially, or provide other resources that are needed. As with any other loan, it is important that personal loans use an investment contract that outlines the size of the investment and the repayment details. Getting a personal loan can be simple or very difficult, depending on who you know, but often carries greater risk than the others, being that failing could result in strain on a personal relationship.
Other types of investors, such as Venture Capitalists, are more appropriate for businesses that are already established, and have a history of returns. These deals are often worth millions of dollars, and are therefore not normally suitable for start-up businesses.