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Finding Financing & Angel Investors


There comes a time when a small or medium-sized business wants to make the move to become a large business. Sometimes, as was the case with Facebook and Groupon, this happens very quickly. Other times, it may be a slower realization that you’ve built something really special. Yet, you may want to borrow money to ensure your new expansion efforts are fully funded. Here’s a quick guide to securing investment capital.

Are You Ready To Expand?

Your company may be ready to expand if you can answer “Yes” to these three questions:

  • Has your business churned a steady profit for the last 3-5 years?
  • Do you have a loyal repeat consumer base?
  • Is the economic climate conducive to business growth in your market?

Types of Financing

There are two main types of financing: equity and debt.

  • Equity Capital is money raised by your company in exchange for share of ownership in the business. Your company will “go public” and offer stocks, which will allow you to raise money without incurring debt. Most small businesses use limited equity financing, where the money comes from friends, relatives, employees or customers. Wealthy investors, known as Venture Capitalists, often fund business growth for 3-5 year old companies.  

  • Debt Financing is money that is given to the company as a loan that must be repaid over a certain period of time. These loans can be short-term (with full repayment in 1 year or less) or long-term. These loans are available through banks, credit unions and commercial finance companies. About 48 percent of businesses use bank loans as their primary source of capital during the survival / growth stage. 

  • Personal Financing is secured by the business owner. More than 70 percent of startups use this type of capital."Unless your business is part of a large organization or in a high-technology or biomedical field, its seed financing is most likely to come from internal sources -- such as savings or mortgages -- family, friends or local business associates," says Roger Knight, Coopers & Lybrand's Director of Mergers and Acquisitions.

Small Business Administration Loans  

Generally, banks have been the most common source of small business funding, but they have been reluctant to offer long-term contracts for small firms. A good way to secure these loans is by participating in the government’s Small Business Administration loan program. The SBA does not give you the loan outright, but they back you with a guarantee that a portion of the loan will be repaid, so banks are more likely to open up their coffers.

Angel Investors

Imagine you have a rich uncle who is really passionate about your company’s products or services. “Here’s $1 Million to buy a few new stores,” he says one day, adding: “You never have to pay me back. I just want you to succeed.” This is every entrepreneur’s dream-come-true! You can find angel investors in the following places:

Expansion is an exciting time, but before you get to sniffing out additional capital, be sure you have thoroughly vetted the marketplace and your business finances before embarking upon the next chapter of business growth. This is where many entrepreneurs let their passions cloud their judgment-making capacity. The old adage “Look before you leap” has never been more applicable. Conduct research as though you’re writing a business proposal.


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Related Articles:
Small Business Association: Borrowing Money
Business Opportunities Handbook: Financing The Three Stages of Business Growth

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