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Small Business Funding Scenarios

There are a number of different ways that you can appropriately receive the capital that you need in order to develop or expand your business operations. The most common method of financing a small business is to obtain a line of credit or a bank loan in regards to this matter. Of course, with the economy having substantial issues, the number of banks providing conventional business loans is limited. This is due to the fact that the risks associated with providing a new business loan are extremely high. As such, many people have turned to the Small Business Administration in regards to receiving a guarantee on this type of financing. The SBA often provides a total guarantee of up to 80% of any specific credit facility. However, it should be noted that you will still need to have the appropriate collateral and credit score in place if you are seeking financing via this method.

The second most common type of funding scenario is through the usage of funding from friends, family, or angel investors. These private investors often want a piece of the business in exchange for the capital that they provide to you. It is important to use a significant amount of caution when you are dealing with friends and family. As a rule, you should conduct all of your capital raising transactions on an arms length basis. If you are using angel investors then you are your certified public accountant should work closely together to determine a fair percentage of your business to sell to a third party. A CPA can provide you with a preliminary valuation of your business when you are working with angel investors or venture capital firms.

In closing, there are many different ways that you can obtain the capital that you need. However, each funding scenario has its strengths and weaknesses. In the case of debt capital, you will not need to provide any part of your business to a third party, but you will be required to pay a substantial monthly interest and principal repayment. In the case of equity capital, you are going to need to sell a portion of your business to an investor that could potentially take control of your business if you do not execute your plan properly. As such, you should take all of these issues into account when you are determining which type of capital is best suited for your business.

Finding Investors for Your Business

Typically, the hardest thing about raising private capital is that you need to find investors for your business. Initially, the best way to go about doing this is to become a member of your local chamber of commerce. There are typically wealthy individuals and local business leaders that frequently make investments into small businesses that within their geographical area. Most angel investors like to have their small business investments within fifty miles of their homes. If your business is already in operation then you should most definitely seek to find private investors within your local area. If you are able to do so effectively then your ability to retain a significantly amount of control over your business will increase substantially.

One of the other ways that you can locate capital for your business is by beginning your search on the internet. However, finding angel investors on the internet can be a tricky process since there are many sites out there do not provide the results that they promise. As such, you are going to want to focus your searches specifically on angel investor networks that hold themselves out as professional investment groups. These organizations consist of wealthy investors that band together in order to provide substantial amounts of capital to small businesses. Most importantly, these groups can provide you with additional rounds of capital if your business is growing very quickly. There is usually a managing member within an angel investor group that is able to screen deals on behalf of their organization.

Finally, you can directly approach venture capital firms that can provide you with the capital that you need for your business. However, most venture capital firms and private equity groups only seek to make investments with a face value greater than $5,000,000. As such, if you are not seeking this much capital then you may want to turn to using a small business investment company. These middle market firms seek to bridge the gap between angel investors and venture capital firms in that they provide capital injections ranging from $250,000 to $3,000,000. Additionally, many of these firms are licensed by the Small Business Administration and they may be able to provide your business with a fixed rate loan rather than buying a portion of your company. In fact, many small business owners initially received their capital from these types of firms in a hybrid fashion. A portion of the capital they received came as a debt investment while the remaining funding was through the sale of shares to these aggregated groups of investors.