How to Raise money for Starting a Business

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: Any time 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 through” those extreme “ups and downs” inherent in
any beginning business. You should also describe what makes your
business unique—how it differs form 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 directories?
An investor uses his money to make more money. He wants to make
as much as he can, regardless whether it’s 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,
and “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 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
potential, 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 S 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 without 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 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 of 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 directories 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 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’re 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 developing 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 invest. There’s
more money now than there’s ever been for a 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!