Sources of Capital
Businesses receive capital from a wide range of sources, banks being only one of them. After looking at your financing proposal, your banker may suggest alternate sources of capital. Alternate sources of capital offer advantages to small business people - but they also have limitations. Here are some common sources worth looking into.
1. Family and friends
Things to watch for:
- They rarely have much capital
- They often want to be involved and have equity in your business - don't give equity away!
- Individual investors commit in a highly personal way; never enter a business relationship with family or friends lightly.
2. Government sponsored lending programs
Things to watch for:
- Loans and programs can vary widely in terms of funding and conditions
- Look into all levels of government for a variety of money available.
3. Third party investors
If you're looking for equity capital, venture capital investors may be worth considering.
Things to watch for:
- Investment Criteria
- Does the venture capital fund seek equity?
- How developed is your business?
4. A partner with the equipment, expertise or money that you need
A business partnership is like a marriage in terms of intensity - never enter lightly.
Make sure you do your research to figure out what source of capital is best for you.
When looking for financing, don't forget:
- Set up a contract and routine methods of reporting
- Don't give away shares of your business without thinking it through
- Look for investors who bring relevant experience and knowledge to your business.
