How to Obtain Financing for a Start-Up Business
It takes money to make money, or so the saying goes. And it's true when you're starting a business. Funds are required for equipment, hosting, inventory purchases, office space, research and product development and numerous other reasons. How much you'll need varies from a few hundred dollars to a few million dollars. Sources include friends and family, angel investors, banks and venture capital.
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Instructions
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Develop a business plan. The process will answer questions about determining your market niche, how to reach your customers, who your customers are and how much financing your start-up business will require. It's a document that potential investors and lenders will demand to review.
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Write an executive summary of your business plan that is no more than four pages long. It is not a mini business plan. Cover each section of the business plan in a brief paragraph in the executive summary. The purpose of the executive summary is to entice investors to request to meet with you or to read your entire business plan.
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Select potential financing sources based on the amount of financing your start-up requires, its projected growth rate, risk involved, your management skills and experience and the industry for your start-up. Friends and family are appropriate for a small amount of funding. Angel investors, also known as accredited investors, invest larger amounts up to several hundred thousand dollars. They're interested in fast-growing companies and a return on investment of perhaps 10 times. Banks are interested in a minimum amount of risk. You'll have to have an excellent personal credit history and show the bank you have several methods to repay the loan. Venture capital companies are similar to angel investors but invest millions of dollars. VCs consider skilled and experienced management high priority.
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Make a computerized slideshow presentation from your business plan. The presentation is used to introduce your start-up to potential financing sources. If they're interested, they'll request the business plan. Keep the presentation to no more than 30 minutes and no more than 30 slides, or one slide per minute.
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Compose an "elevator pitch." Imagine you're in an elevator with T. Boone Pickens or Donald Trump. You have 60 seconds to pitch them with your start-up business before they reach their floor and get off. The average person talks at 125 words per minute, so your elevator pitch shouldn't be longer than that.
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Spread the word that you are looking for start-up capital by telling people about your new business. Include your attorney and accountant in your referral base. Their clients may be interested in investing. Contact angel networks. Research venture capital companies that have made investments in similar but not competitive companies. Contact them with a cover letter and your executive summary. Select several banks that provide business financing if your preferred method of financing is a loan.
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Tips & Warnings
Allow enough time to find the financing and go through the approval process.
If friends and family invest in your business, have an attorney draw up the proper documents. If it's a loan you'll need documentation as well.
