Business Start Up | Raising Business Capital

Copyright © Kevin Purfield
 

The task of raising money for a business is not as difficult as most  people seem to think.  This is especially true when you have an idea  that can make you and your backers rich.  Actually, there's more money  available for new business ventures than there are good business ideas. 

 A very important rule of the game to learn:  Anytime you want to raise money,  your first move should be to put together a proper prospectus. 

 This prospectus should include a resume of your background, your education,  training, experience and any other personal qualities that might be counted  as an asset to your potential success.  It's also a good idea to list  the various loans you've had in the past, what they were for, and your  history in paying them off. 

 You'll have to explain in detail how the money you want is going  to be used.  If it's for an existing business, you'll need a profit and  loss record for at least the preceding six months, and a plan showing how  this additional money will produce greater profits.  If it's a new business,  you'll have to show your proposed business plan, your marketing research  and projected costs, as well as anticipated income figures, with a summary  for each year, over at least a three year period. 

 It'll be advantageous to you to base your cost estimates high, and your  income projections on minimal returns.  This will enable you to "ride thru"  those extreme "ups and downs" inherent in any beginning business.  You should also describe what makes your business unique - how it differs  from your competition, and the opportunities for expansion or secondary products. 

 This prospectus will have to state precisely what you're offering  the investor in return for the use of his money.  He'll want to know  the percentage of interest you're willing to pay, and whether monthly,  quarterly or on an annual basis.  Are you offering a certain percentage  of the profits?  A percentage of the business?  A seat on your board  of directors? 
 

 An investor uses his money to make more money.  He wants to make as much  as he can, regardless whether it's a short term or long term deal.  In order to attract him, interest him, and persuade him to "put up"  the money you need, you'll not only have to offer him an opportunity  for big profits, but you'll have to spell it out in detail, and further,  back up your claims with proof from your marketing research. 

 Venture investors are usually quite familiar with "high risk"  proposals,  yet they all want to minimize that risk as much as  possible.  Therefore,  your prospectus should include a listing of  your business and personal  assets with documentation - usually  copies of your tax returns for the  past three years or more.   Your prospective investor may not know anything  about you or your  business, but if he wants to know, he can pick up  his telephone  and know everything there is to know within 24 hours.  The point  here is, don't ever try to "con" a potential investor.  Be honest  with him.  Lay all the facts on the table for him.  In most cases,  if you've got a good idea and you've done your homework  properly,  an "interested investor" will understand your position and offer  more help than you dared to ask. 

 When you have your prospectus prepared, know how much money you want,  exactly how it will be used, and how you intend to repay it, you're ready  to start looking for investors. 

 As simple as it seems, one of the easiest ways of raising money is by  advertising in a newspaper or a national publication featuring such ads.  Your ad should state the amount of money you want - always ask for more  money than you need so you have room for negotiating.  Your ad should  also state the type of business involved (to separate the curious from  the truly interested), and the kind of return you're promising  on the investment. 

 Take a page from the party plan merchandisers.  Set up a party and invite  your friends over.  Explain your business plan, the profit potentials,  and how much you need.  Give them each a copy of your prospectus and ask  that they pledge a thousand dollars as a non-participating partner in your  business.  Check with the current tax regulations.  You may be allowed  up to 25 partners in Sub Chapter 5 enterprises, opening the door for anyone  to gather a group of friends around himself with something to offer them  in return for their assistance in capitalizing his business. 

 You can also issue and sell up to $300,000 worth of stock in your company  with out going through the Federal Trade Commission.  You'll need the help  of an attorney to do this, however, and of course a good tax accountant  as well wouldn't hurt. 

 It's always a good idea to have an attorney and an accountant help you  make up your business prospectus.  As you explain your plan to them,  and ask for their advice, casually ask them if they'd mind letting you  know of, or steer your way any potential investors they might happen to meet.  Do the same with your banker.  Give him a copy of your prospectus and ask  him if he'd look it over and offer any suggestions for improving it,  and of course, let you know of any potential investors.  In either case,  it's always a good idea to let them know you're willing to pay a "finder's  fee" if you can be directed to the right investor. 

 Professional people such as doctors and dentists are known to have a  tendency to join occupational investment groups.  The next time you talk  with your doctor or dentist, give him a prospectus and explain your plan.  He may want to invest on his own or perhaps set up an appointment for you  to talk with the manager of his investment group.  Either way, you win  because when you're looking for money, it's essential that you get the word  out to as many potential investors as possible. 

 Don't overlook the possibilities of the Small Business Investment Companies  in your area.  Look them up in your telephone book under "Investment Services."  These companies exist for the sole purpose of lending money to businesses  which they feel have a good chance of making money.  In many instances,  they trade their help for a small interest in your company. 

 Many states have Business Development Commissions whose goal is to assist  in the establishment and growth of new businesses.  Not only do they offer  favorable taxes and business expertise, most also offer money or facilities  to help a new business get started. Your Chamber of Commerce is the place  to check for further information on this idea. 

 Industrial banks are usually much more amenable to making business loans  than regular banks, so be sure to check out these institutions  in your area.  Insurance companies are prime sources of long term business  capital, but each company varies its policies regarding the type of business  it will consider.  Check your local agent for the name and address of the  person to contact.  It's also quite possible to get the directors  of an other company to invest in your business.  Look for a company that  can benefit from your product or service.  Also, be sure to check at your  public library for available foundation grants.  These can be the final  answer to all your money needs if your business is perceived to be related  to the objectives and activities of the foundation. 

 Finally, there's the Money Broker or Finder.  These are the people who  take your prospectus and circulate it with various known lenders or  investors.  They always require an up-front or retainer fee, and there's  no way they can guarantee to get you the loan or the money you want. 

 There are many very good money brokers, and there are some that are not  so good.  They all take a percentage of the gross amount that's finally  procured for your needs.  The important thing is to check them out fully;  find out about the successful loans or investment plans they've arranged,  and what kind of investor contacts they have - all of this before you put  up any front money or pay any retainer fees. 

 There are many ways to raise money - from staging garage sales to selling  stocks.  Don't make the mistake of thinking that the only place you can  find the money you need is through the bank or finance company. 

 Start thinking about the idea of inviting investors to share in your  business as silent partners.  Think about the idea of obtaining financing  for a primary business by arranging financing for another business  that will support the start-up, establishment and development of the primary  business.  Consider the feasibility of merging with a company that's  already organized, and with facilities that are compatible or related  to your needs.  Give some thought to the possibilities of getting the  people supplying your production equipment to co-sign the loan you need  for start-up capital. 

 Remember, there are thousands upon thousands of ways to obtain business  start-up capital.  This is truly the age of creative financing. 

 Disregard the stories you hear of "tight money," and start making phone  calls, talking to people, and making appointments to discuss your plans  with the people who have money to invest.  There's more money now than  there's ever been for new business investment. The problem is that most  beginning "business builders" don't know what to believe or which way   to turn for help.  They tend to believe the stories of "tight money,"  and they set aside their plans for a business of their own until a time  when start-up money might be easier to find. 

 The truth is this:  Now is the time to make your move.  Now is the time  to act.  The person with a truly viable business plan, and determination  to succeed, will make use of every possible idea that can be imagined.  And the ideas I've suggested here should serve as just a few of the unlimited  sources of monetary help available and waiting for you! 
 

 bio: Resource Box   ---------------------------------------------------------------  Kevin Purfield owns the Wealth System Online Resource Directory  where you can find everything you need to start,run and grow a home based  internet business at: 
http://www.wealthsystemonline.com/
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