If you have a great business idea but not a lot of cash to get things started, you may want to begin a hunt for potential investors. There are people and companies who specialize in providing investment capital to new and expanding businesses. You may also attract potential investors from among your family and friends. Creating a business plan, reaching out to potential investors through online and networking services, and being willing to present your ideas professionally can get you the cash you need to run your business.
Courting and working with investors can be tricky but has advantages over attempting to take out bank loans to fund your business. Banks often have strict and inflexible criteria for approving loans. If your project is perceived as risky or your credit history is compromised, getting a loan at a decent rate may be difficult. Private investors, on the other hand, often have different criteria and may be willing to invest in projects that scare off a bank in hopes of getting a better rate of return over time.
Before beginning your investor search, develop a comprehensive business plan. Any investor will want to know about how you plan to develop the business and its potential for future profits. An accountant, business coach, or mentor may be able to work with you on putting both a plan and an investor presentation together.
Many people begin their search for potential investors with friends and family, some of whom may not even expect to be repaid. If you are offered a gift of money to help you start your business, be sure to get a letter from the person offering the gift to clarify that the money is a gift, not a loan. Tax laws for accepting gifts of money vary from country to country, so make sure you understand them prior to accepting the gift. As of 2010, a person in the United States can receive a gift of up to $12,000 with no tax liability. Other friends and family members may be willing to extend a private loan or may offer an equity investment in which they would own part of the business. Friends and family can also be an excellent source of leads for other potential investors.
When working with friends and family is not an option, you may have to go outside your social circle to find someone who is willing to invest in your business. There are several online networking sites for those who want to get matched with an investor or an investment firm. There are also direct peer-to-peer lending sites that actually facilitate the loan process. If you are concerned about the potential for damaging relationships with friends and family over a business that fizzles, working with potential investors who are strangers to you may be your best option.
Be sure that you hire a competent attorney to advise you on any contracts that you sign. Documents provided to you by a potential investor are likely to be written in his or her favor, not yours. You don't want to work hard to build a business only to lose it to an investor because you didn't understand the terms of accepting that investor's contribution.
