Financing Your Business: An Overview
There are multiple sources of money to finance your business depending on the stage of life your business finds itself in. Most businesses start up using personal savings and loans from relatives. There are others that are funded from outside sources. If you are seeking an outside source for start-up money, there are certain basics you need to know.
Basics
· No one is obligated to give you money.
· All sources want to know the same things:
o How safe will my money be? If you have a well-thought-out business plan and will use it as a guide, with measurable results along the way, you’re ahead of the pack.
o Am I likely to earn an acceptable rate of return on my money? Only the financier gets to decide what is acceptable
o Has the Business Owner demonstrated Commitment to hard work and stick-to-it-iveness? For Bill Gates, with many billions of dollars, an investment of a thousand dollars of his own money isn’t impressive. For John Q. Public, whose life savings amount to $1,500, it’s a real demonstration of commitment.
o Does the Business Owner know what he is doing? Has he ever run a business before?
o What other options are there for my money right now? You can’t control that. For example, he may have a chance to invest in preferred stock in a well-known company with a history of frequent and increasing dividends or may want to take a cruise around the world.
o Are you, personally, worth investing in?
· You’ve taken up someone else’s time already. If I engage, will it be throwing away my most valuable asset, my time?
· Are the assumptions reasonable and verifiable?
· Hockey stick charts are a deal-killer.
· Bank Loans are always easy to get if you don’t need money. It’s when you need money that they’re hard to get.
Sources include Bank Loans, for which collateral is needed.
SBA Loans are not made by the SBA, but by a lending institution (e.g., bank). The SBA may guarantee a portion of the loan, making it safer for the lender. SBA will be addressed in a separate future post.
Friends and Family Investors are typically done via a Form U-7, which allows you to sell stock in individual states and often neighboring states. If a state has a reciprocity agreement with a bordering state, then the original state’s approval constitutes automatic approval in the reciprocating states.
Selling stock on the major public markets isn’t going to happen for most people.
Angel Investors are the right source for most good business ideas. The Angel usually understands your business and can offer advice.
Venture Capital isn’t like any other type of source. If you don’t already understand it, forget it.
There’s always currency forgery and bank robbery.
Once you’re in business, invoice factoring is available to you.
A great way to raise money is to establish a subsidiary and sell shares in that.
Some people ask others to raise money for them. If I can raise money, it will be for me.
There will be separate articles on each of these, and more as I think of them.
This overview article is available to everyone without charge. Individual articles will be behind a paywall.
There’s always currency forgery and bank robbery.
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The Fed doesn't like competition there.
Despite not being financially savvy, I love how you explain things with clarity. Much appreciated