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How to Raise Capital For Your Business Without Asking Your Bank
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Getting your business off the ground requires money. Sometimes, it requires a lot of money. The catch is that many banks don’t want to lend money to a startup because of the inherent risk involved. This is especially true today with many banks holding onto their cash reserves and only making loans to the most promising of ventures. Fortunately, you don’t need a bank help you start or expand your business. There are many ways you can get the funding you need. All you need to do is get a little creative with your financing options.
Offer Stock
You can’t offer stock to the general public as a startup. One way around this is to buy a dormant corporation. Every year, many companies simply fail to take off. Some of those companies are public companies that have gone bankrupt or are about to go out of business. You can often approach these businesses and make them an offer.
Once you have purchased the corporation, you can begin offering shares to investors. This is sometimes referred to as a reverse merger if you start a business, buy a shell (dormant) company, and then force the public company to buy out your original business. The transaction has to be legitimate, and all of the paperwork involved with a merger needs to be completed, but it will give you the right to make a public offering and attract investors. Those investors will, in turn, fund your new business venture.
Angel Investors
Angel investors or venture capitalists are investors who want to help startup companies. These investors regularly review good business ideas, and make promising beginners an offer. In exchange for the money, you will have to give up some control of the company.
The angel investor wants to see a return. That means you have to give the investor a substantial portion of the company to get your dreams funded. Usually, the angel investor does not desire controlling interest in the company, but he can. It might not always be the most attractive option, but it can provide you with a very strong source of capital. While it’s definitely a non-traditional route, many well-known companies use angel investors. For example, Facebook, MySpace, and many other technology companies were funded by angel investors. These investors had the seed capital that banks were unwilling to lend, and provided ongoing funding until the business became profitable.
Savings
Retirement accounts are one way to fund your business. Cash value life insurance is another. Any personal savings you have is an obvious choice, but what about borrowing money from your family and friends? Convincing your friend or relative to mortgage their house, or become your business partner in exchange for some of their 401(k) money might be a hard sell. However, if you have a solid business plan, and approach them like you would any other financial institution, they might be willing to take you seriously.
Borrowing money from family is also a great way to ruin a relationship, so make sure you get every detail of any loan in writing. Everything should be spelled out in explicit detail. Don’t leave anything to a handshake or an unspoken agreement – especially the repayment agreement.
Factoring
If you already own a business, consider a factoring company. A factoring company buys your accounts receivable in exchange for an immediate cash infusion. You trade your invoices for a loan that is worth 75 percent to 80 percent of the total value of those invoices. The factoring company may also charge additional fees on top of this amount. This option is expensive, but it does provide you with quick financing if that’s what you need.
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