Finding a financial backer is important if you want to start a new business or expand your existing business. Whether you look to a private investor, a bank, or an alternative lender/investor, there are several steps involved in securing financial backing for your business.
How to Find a Financial Backer:
1. Consolidate assets and save your own money.
Before you look for other sources of funding, take stock of the value of any assets that you own. It's important to have a record of your assets in case one of your lenders requires you to post collateral when you take out a loan. For investors, valuable assets show that your business is worth something and has liquidity in case debts need to be paid off.
Another important step is to save your own personal money so that you can invest in your business. This shows lenders and investors that you're personally invested in what you're doing and that you already have some cash flow to work with.
2. Write a business plan.
If you want to secure outside funding, a business plan is essential. Investors and lenders need to see your business plan to know that you have a viable business idea. This will assure them that their investment is worth the risk.
Check out our free business plan template to get started.
3. Decide what source(s) of funding best suit your needs.
First, you need to decide what sources of funding suit your current business needs. This will probably depend on factors like your credit rating, what collateral your business can put up, and how much money you need to take your business where you want it to go.
Possible sources of funding include:
4. Approach investors/fill out applications.
If you are seeking traditional term loans through a bank or some other financial institution, all you need to do is contact them directly and fill out applications for whatever loans suit your needs. This usually involves submitting supporting documentation like a cash-flow statement, profit and loss statement, etc.
If you are looking for private investors, things are not as straightforward. Investors fall into different categories, and each of them must be handled differently. The three main types of private investors are:
Venture capitalists: Venture capitalists are firms or individuals that are able to inject millions of dollars into an already established business with significant revenue. Venture capitalists charge interest on their investment, which is usually garnered from profits.
Private equity investors: Private equity investors buy a stake in your business, giving you more access to cash as you can put their investment to work immediately. The downside of selling equity in your company is that you are also relinquishing a portion of the ownership to a third party.
Angel investors: Angel investors are individuals with a net worth of over $1 Million, or an annual income in excess of $200,000. These investors may offer smaller amounts than venture capitalists, which is useful when a company is in its first stage of growth.
Where to Find Investors:
LinkedIn makes it easy to connect with professionals and start a conversation about investment opportunities. Many LinkedIn members even include the fact that they are investors in their bio, so they are easy to find.
AngelList helps to connect startups with investors by allowing startups to create profiles that showcase their work and display what round of funding they are in. Investors can message them directly, and startups can do the same if they discover an investor profile that matches with theirs.
Angel Investor Networks:
An Angel Investor Network is one that businesses pay to participate in through membership fees. Entrepreneurs sign up and are given the opportunity to pitch to investors directly. This allows startups to find investment opportunities that they may not otherwise be aware of.
Accelerator programs are generally run by local or state business organizations to encourage business growth. Being accepted into a program often means that your business receives funding, special coaching, and access to critical resources that will help you grow.
Business Networking Events:
Despite all of the online tools that are available for startups seeking financial backing, face-to-face networking is still valuable. If you are part of a local business association, attend networking events so that you have the opportunity to meet other business leaders. By developing your network, you never know what connections you will make that could lead you to your next investor.
5. Agree to repayment terms.
Once you have found an investor or lender who is willing to give you the money that you need for your business, it's time to sign a contract and agree to repayment terms. Repayment terms may vary widely based on the type of lender/investor you've chosen, and the amount of money that you have borrowed. In any event, you should add your repayment to your budget so that your business does not fall behind.
6. Put your new financing to work.
Anyone who has given or loaned you money for your business expects results, so you need to put your new injection of funds to work right away - whether that means purchasing new equipment, hiring more employees, or buying a property. If you manage the investment well, your business will grow and you will be able to satisfy the requirements of your investors.
How do I find a financial investor?
- Network with professionals in your industry.
- Pitch at business startup competitions.
- Use online platforms like LinkedIn and AngelList.
- Join an Angel Investor network.
What are sources of funding?
How do you finance a startup company?
Startups looking for financing can turn to business leaders, investors, and equity partners to secure the money that they need to start or expand their business.
How do I get free money to start a business?
"Free money" is almost non-existent in the business world. However, you may be eligible for grants that can help you get your business started.
How do I get money to start a business with bad credit?
It is usually more difficult to get financial backing with poor credit, but not impossible. Some lenders specialize in providing loans to businesses with a poor credit rating.
What is angel investor funding?
An angel investor is an individual with either (a.) a net worth of at least $1 Million, or (b.) an annual income of $200,000 or more. Angel investors invest in startups and typically receive equity as compensation.
How do you find angel investors?
You can join a local angel investor network, or you can use online tools like LinkedIn and AngelList to find and connect with angel investors who are looking for opportunities in your region or industry.
How can I start a business with low investment?
If you are unable to secure a large investment in your business at the very beginning, plan to scale things up slowly and try to keep your expenses to a minimum. As your revenue grows over time, investors and lenders will be more likely to give you money.