How to Make Capital

Raising enough capital is critical before you launch a start-up.

To launch a business, you will need capital. Many businesses fail in the first couple of years because start-ups are under capitalized. You will need funds to establish your company, buy equipment, hire staff, conduct marketing and buy materials. You can raise capital from investors, family and friends. You can also seek long-term and short-term loans from Small Business Administration programs and other loans from financial institutions.

Instructions

1. Before you start your capital search, make sure your business plan is complete. You will need this for bankers, investors, partners and friends and family who you approach for funding. SCORE offers templates on how to create a business plan, identify long-term capital, chart cash flow, project sales and compile monthly sales and expense reports. Seek free mentoring from SCORE counselors who are experienced in your industry. You'll need a five-year plan and detailed financial projects for two years or more. Be clear about how much capital you need to start and whether you need a line of credit or a draw down later.

2. Ask friends, family or trusted associates for a loan or investment capital. Give them a copy of your business plan. Disclose all information about the risks involved. Be prepared to answer questions and explain what's in it for them. Explain what security you may offer, shares in your company and how you will repay them with interest. Establish recourse for dispute resolution if you aren't able to repay as planned.

3. If the individual is offering assistance with capital as an investment, establish a firm deal. Consider whether your investor will become an active partner, a silent investor, an officer in the company or member of your board. Establish the valuation of his investment, how he can "cash out" or invest more. Define whether his further investment will dilute your ownership. Define the risks.

4. Apply for a loan with an SBA lender, a national bank, local community bank or other financial services. Research what types of loans are available and find institutions that lend to small businesses and maybe in your field. Apply for a loan in person. Bring your business plan and prepare your overall pitch, limited to five minutes. Be prepared to answer questions about your concept, the marketplace, risks and why you are qualified to build the company. Explain why you are creditworthy. Bring all the items requested by the loan officer. It helps if you already have a business relationship with the lender and you know the officer.

5. Save your money. If you are currently working, save as much money each month as you can. Prepare a record of income allocation for all bills and necessary expenses. Figure out how much can go toward saving for future capital. Stick to your plan. Consider using your investments in stocks, IRAs, 401-k programs and other retirement plans. Some lenders can devise ways to use your retirement accounts as a way to invest in your own company. Research all options carefully because of risks and penalties.

References

• Primer Magazine: Building Capital For Your First Small Business
• Red, White and Blue Press: Small Business Loans and Lenders
• SBA.gov: Business Loans, Grants, Financing
• SCORE.org: Business Templates, Tools, Mentoring