How Can I Get Business Start-Up Financing Without Equity?

A good professional image and written business plan can result in gaining start-up funding.

Obtaining financing for a new business with no equity is not too difficult if the principals of the company can document credibility. Options are available for individuals to obtain loans based on personal credit scores. But, groups of investors called "angel investors" are plentiful. One or more business people looking for a higher return than a bank rate on invested monies are referred to as angel investors. They base their decisions to lend on professionalism of the company and its founders, plus strong belief in the market for products or services offered by the company.

Instructions

1. Obtain a credit history report for the sole proprietor or key principal officers of a start-up business. Use the leverage of good personal credit for one or more people to get a loan. Become familiar with the risks involved, however, since individuals will be responsible for the payback of the funds.

2. Inquire about local or regional angel investors who personally fund new businesses. Get coaching from a SCORE counselor to create a written business plan and verbal presentation. Attend a fact-finding session when scheduled by an angel investor or other investment group. Count on explaining all details of the business using clear facts and logic, but emphasize the passion for starting the business. Never overlook the fact that investors like to lend money based partially on enthusiasm of those involved in the startup.

3. Back up any type of presentation to a potential funder by making credibility a large issue. Use a board of directors, for example, with individuals that are well-known or highly credible in the business community. Ask a local entrepreneur who has started several successful non-competing businesses to sit on your board, for example. Recognize the fact that any lender will be impressed by those who will guide the new business.

4. Hire an accountant who is a CPA to create a projected profits statement for the first three years. Demonstrate willingness to hire someone qualified to direct the accounting of the business by using the name of the CPA in all discussions. Show the lender that preliminary work and careful thought has gone into developing the potential new business.

5. Ask those helping you about starting a small corporation to help fund the business, if all other funding does not materialize. Interview these individuals before incorporating to see if funding the business personally would be an option for them. Don't wait until a business has been established to see what involved principal parties might be willing to do. Consider the fact that owners of the business might be the best investors by offering loans obtained from respective home equity loans, for example.

Tips & Warnings

• Investigate how to sell stocks once a business has been incorporated. Talk with a SCORE counselor about how this kind of funding can be obtained once incorporation papers are filed and approved. Ask friends and relatives to buy stocks to raise capital.

• Review ways to keep start-up costs to a minimum, so that excessive funding will not be needed. Never accept large sums of money from angel investors thinking no precise legal requirement is in effect to pay the money back. Any angel investor can sue for payback, if it can be proven the business was not operated professionally.

References

• Your Equity: Business Startup
• Small Businss Solutions: Funding Your Business with Loans Versus Equity
• BPlans: Sweat Equity

Resources

• Small Business Notes: Angel Investors
• Inc.: Angel Investor Directory