How to Raise Capital Privately
Raising capital privately can be done several ways. Contacting a wealthy relative may be an obvious choice for some. But for the rest of society, the task make take some research. Many people turn to angel investors for startup funds. Finding the best private capital resources can be the new entrepreneur's biggest hurdle.
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Things You'll Need
- List of philanthropists
- List of financial institutions previously used in personal or business accounts
- Inventory of assets and liabilities
Instructions
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Smart Ways to Privately Raise Capital
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Start with what you already own. Equipment leasing is good for companies that own relatively new equipment that can be rented. The income earned from the equipment should pay for it, plus add to the capital fund. For instance, if you have extra projector machines in the company inventory, consider renting them to schools.
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Try microloans for amounts between $300 and $35,000. These may not need to be backed with collateral and may be from private institutions and nonprofit organizations. These loans are faster to obtain approval for than other forms of loans. Check local centers for business development to learn more. Face-to-face meetings may go a long way toward helping you get a microloan.
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If more funding is needed, explore options with private loan guarantees. They work well for people who find it hard to relinquish control of the business. This may be where a philanthropist who does not want to own the business operation could enter as the backer. This option operates similar to the SBA (Small Business Administration) for business loans. Typically, the bank is guaranteed over 90 percent of the money borrowed from the SBA, which makes the investment to the business worthwhile for the banking institution.
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For more long-term capital, solicit angel investor groups. These groups may offer funds with strings attached. Many options are online, such as Lending Club, which offers opportunities for borrowers and lenders. Be cautious: some of these online groups have not been screened for legitimacy, and there is risk involved.
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Sponsor a social event and collect the proceeds on behalf of the business. This is great way to benefit the company's capital fund and potentially network for more private investors. It should be made clear that the money goes toward a certain project or business department in need. Having wealthy associates who enjoy social environments is helpful if you're planning this type of private fundraiser. Examples are a silent auction or benefit dinner.
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Tips & Warnings
Be sure to check with the IRS to see how to categorize the capital raised. Hire an accountant to oversee the private capital gained.
