Almost every business will need to request funding at some point. There are many different sources of funding, determined primarily by your ability to provide a return on investment. Knowing where to find these investors and learning what drives their funding methodology is key.
Determine your audience. A person or business just starting out is selling to a different investor market than a more experienced business. Bankers want collateral for debt, and investors want a return commensurate with the risk involved. Start by asking these important questions: Are you looking for a loan (debt) or would you be willing to sell a portion of your business (equity)? How much control do you want over management?
Contact friends, family and high-performing employees. Sometimes employees will invest in the company for equity share and friends will help promote your business. This is often an overlooked step in start-up funding.
Contact an angel investor (see Resources). Angel investors are usually high-net-worth investors who invest in companies at the early stages in exchange for equity in the company. They are primarily attracted to start-up companies with good management or intellectual property. Use your personal network or angel investor forums to seek out investors.
Contact a venture capital firm (see Resources). Venture capital firms are one step above angel investors. They usually invest more funds in exchange for a greater percentage of equity. They are also known for taking on a management role in the venture.
Contact local and federal government programs. The Small Business Administration's All-Stars is a ranking of the best field offices (see Resources). If you have an agricultural venture or rural business, there might also be special funding available.
Raise private and public equity. Private equity has become a popular option. While this is an excellent source for start-up funding, the challenge is establishing the partnerships. The private placement memorandum is the legal document that accompanies most private equity deals. You can also do a direct or initial public offering of stock for equity sales.
Apply for a bank loan or hire an investment bank to manage a debt offering. Both require a substantial amount of credibility among business partners. Past performance will be scrutinized more than profit potential. Microloans are available for small-business owners, particularly in undeserved communities.
Form strategic partnerships with both customers and suppliers. These partnerships can be a good source for short-term funding on payables and receivables. It is not uncommon for customers to extend terms on their good suppliers in need.