How to Raise Money to Start a Business (Part 2)

August 17, 2012 | By | Reply More

How to Raise Money to Start a Business (Part 1)

Here are other ways to raise money for your business:

Banks

Banks can be your least expensive route to raising capital, as you can get loans that are just about 2 percent above prime. However, you would need assets or profitable and clean credit histories to avail of bank loans. In addition, some banks may require established businesses to provide one third of the equity injection and start-ups up to 50 percent or more. You will also need to have a business plan with adequate documentation demonstrating a projected cash flow that will enable you to repay (on time) the loan with interest. You can, in most instances, borrow small amounts of money from local banks for periods of up to three years. An unsecured loan requires only your signature, but more than likely a secured note will be offered to you. This has lower interest payments than an unsecured note, but will require you to pledge some assets, such as stock, or to have someone guarantee the loan. The bank can also provide you with a credit line, which is a revolving bank account secured against your inventory or accounts receivable that allows you to draw funds against a given total established by your bank.

finance a business

Industrial banks, or industrial loan companies, 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. Some examples of industrial banks including Merrill Lynch Bank, UBS Bank USA, among others.

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Crowd Funding and Investor-Entrepreneur Match Up Sites

As simple as it seems, one of the easiest ways of raising money is by advertising that you are looking to raise capital for your business.

One way to do this is to use the growing number of “crowd funding” websites. Sometimes called “crowd financing” or “crowd sourced capital,” crowd funding provides the collective cooperation of people willing to pool their money to support projects, activities and businesses that interest them.

There are also several web sites offer match-up services for investors and capital seekers. Garage.com, for example, assists entrepreneurs in the high technology sector in securing seed-level financing by presenting their business requirements to a pool of high quality investors.

Read the following articles:




Credit Cards

Some entrepreneurs use several credit cards to provide a substantial cash bankroll for the business start-up. In fact, credit cards are used by nearly one-third of start-ups. It is relatively easy to obtain, and eases the bookkeeping systems. However, using credit cards to launch a business is the least wise, since credit card money is the most expensive money that you can borrow. If you intend to carry a balance, the annual interest charges (12 to 21 percent) are quite steep. While credit card advances is one of the most commonly used sources for start-up financing, it is dangerously close to gambling.

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Small Business Investment Companies

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 that they feel have a good chance of making money. In many instances, they trade their help for a small interest in your company.

Business Development Commissions

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 businesses expertise, most also offer money or facilities to help a new business get started. Your Small Business Administration or Chamber of Commerce is the place to check for further information on this idea.

Life Insurance and 401K Loans

Another frequently overlooked source of start-up funds is borrowing from life insurance. Loans are almost always obtainable against policies with savings features.

Retirement funds such as 401K is also another source of capital that you can tap for your business. However, these types of loans can be very costly if not handled properly. Understand carefully the tax ramifications of getting a loan against your 401K.

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Money Broker or Finder

These people take your prospectus and circulate it with various known lenders or investors. They always require an up-front or retainer fee, and there is 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.

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. This is truly the age of creative financing.

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!

Investment dollars are not out of the question for a home business, but it isn’t a likely situation unless your business has the potential to gain significant stock value. This also means that your company will need to be larger than just an extension of yourself. To attract investors, you will have to make the case that the business could be sold at some point to another person or company that could pick up where you left off and continue to grow the business. If this is the case with your enterprise, you might consider going through the pain to gain investors, but be prepared to learn how the system works before you send off proposals.

Check your local agent for the name and directors of another company to invest in your business. Look for a company that can benefit from your product or service. Also, be sure to check at you public library for available foundation grants. These can bet he final answer to all your needs if your business is perceived to the related to the objectives and activities of the foundation.

 
 

Part 1 | Part 2

Recommended Books on How to Raise Money to Start a Business:

 

Isabel Isidro is the co-founder of PowerHomeBiz.com. A mom of three boys, avid vintage postcard collector, frustrated scrapbooker, she also manages Women Home Business, Starting Up Tips and Learning from Big Boys. Connect with her in Google +.

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