Business Investors: Everything You Need to Know
A business investor is an individual or group who commits capital toward the creation of a new business.4 min read
2. How to Get Your Business Funded
3. Small Business Financing Myths
4. Where to Look for Money
5. Venture Capital
6. “Sort-of” Venture Capital: Angels and Others
7. Commercial Lenders
8. The Small Business Administration (SBA)
9. Other Lenders
What are Business Investors?
Business investors are individuals or a group who commit capital toward the creation of a new business with the expectation of monetary gain upon the success of the new business.
How to Get Your Business Funded
Contrary to popular belief, business plans don't generate business loans. True, there are many financing choices that require a marketing strategy, but no one invests in a marketing strategy. Traders do want a written plan that communicates concepts and data, but they give money to an organization, to a product, or to individuals.
Small Business Financing Myths
Banks don’t finance enterprise startups. A well-written and convincing marketing strategy (and pitch) can sell buyers on your online business idea, but you’re also going to have to convince these buyers that you're worth investing in. Funding is as much about whether you’re the appropriate person to run your online business as it is about the viability of your idea.
Where to Look for Money
When searching for funds, your funding should match the needs of the company. Where you search for money and how you search for money, depend on your organization and the type of funding you want. There is a big difference, for instance, between a high-growth internet-related firm in search of second-round enterprise funding and a neighborhood retail store trying to finance a second location.
The venture of venture capital is often misunderstood. Many startup firms resent venture capital firms for failing to invest in new ventures or risky ventures. Individuals refer to venture capitalists as sharks, due to their supposedly predatory enterprise practices, or as sheep, since they supposedly act like a flock, all wanting identical offers. The individuals we call venture capitalists are people who find themselves charged with investing other people’s money. They have expert accountability to scale back risk as much as possible.
Venture capital shouldn’t be regarded as a supply of funding for any but a few distinctive startup companies. Enterprise capital can’t be put into startups unless there's a mix of the following:
- Product choices
- Market choices
- Established leadership
Venture capital funding must be likely to increase its worth tenfold within three years. It must concentrate on newer merchandise and markets that can increase gross sales several times over a brief time period.
“Sort-of” Venture Capital: Angels and Others
Enterprise capital isn't the only supply of funding for startup companies or small businesses. Many firms are financed by smaller buyers in what is known as “personal placement.” For instance, in some areas, teams of potential buyers meet often to listen to proposals. There are also rich people who often put money into new firms. Within the lore of enterprise startups, teams of buyers are sometimes called “docs and dentists,” and some individual buyers are known as “angels.” Many entrepreneurs turn to family and friends for funding.
Banks are an even tougher source than enterprise capitalists for startup funds. Nevertheless, small business owners are quick to chastise banks for not financing new companies. Banks usually do not devote money to companies because of federal banking guidelines.
Banks are prevented from investing in companies by the federal government because society generally doesn’t want banks to take savings from shareholders and invest in risky enterprise ventures. If these enterprise ventures fail, financial institution depositors’ cash is in danger. Similarly, banks shouldn't mortgage cash to startup firms. Federal regulators need banks to protect their cash with conservative loans backed by stable collateral. Startup companies usually are not safe enough for financial institution regulators, and so they don’t get sufficient collateral.
The Small Business Administration (SBA)
The SBA gives loans to small companies and even to startup companies. SBA loans are nearly always utilized for and administered by local banks. For startup loans, the SBA will usually require that at least one-third of the required capital be provided by the business proprietor. Moreover, the remainder of the amount must be assured through collateral.
The SBA works with licensed lenders, which are banks. It takes a licensed lender as little as one week to get approval from the SBA. If your personal bank isn’t a licensed lender, you must ask your banker to recommend a neighborhood bank that is.
Apart from commonplace financial institution loans, a longtime small enterprise can also borrow against its accounts receivables. The most typical accounts receivable financing is used to help money circulate when revenue is tied up in accounts receivable. Rates of interest and fees could also be somewhat excessive; however, that is not typically a great source of small enterprise financing. Normally, the lender doesn’t carry the risk of payment — in case your buyer doesn’t pay you, you must pay back the cash anyway.
If you need help with investing in your business, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.