If you are thinking of establishing your own business to earn a smart income, the first thought that comes in your mind will be investment finances. You either use your savings or take a bank loan, and the other way is to ask people to invest in the business to make a profit share.
Here’s what we cover in this article:
- Ways to find investors for a small business?
- What attracts investors?
- What is a fair percentage for an investor?
Ways to Find Investors for a Small Business
You can find investors for your small business on different online platforms. Here are few steps which help you to regulate your finances:
1.Friends and family support:
Before starting any business, discuss your plan with your family members and close friends. You should ask for investment from their side if they are willing. They can also help you make the right decision about taking a loan or trying any other way for your startup.
The investment would be the more profitable method as the investors are just investing their money, and they take their share in case of profit only. Taking a bank loan can set you in difficulty if you didn’t return the money on time.
You should keep everything clear to your friends and family who are investing in your business. They must be aware of the potential return on investment, pros and cons, and risk factors of investing money.
There is a severe drawback of involving family and friends; that is, if something goes wrong in business or you face loss, then it will spoil your relations in the long term.
2.Small business administration loan:
You can take help from the agency named ‘Small Business Administration.’ It was established in 1953 in the United States.
This agency’s primary purpose is to find lenders or business investors first to lend their money as a business loan through this agency to needy people worldwide. There are certain limitations and rules set before lending money to someone.
They lend money at low-interest rates but must follow the due date of payment strictly. It also helps people in managing their business and guides them on how to startup and excel in their business to raise their income.
3.Online lending platforms:
Several online networks are working to help needy people who want loans to startup their business setup. They follow proper documentation and register the details of clients with whom they are dealing.
Some online lending platforms are:
- Trust Leaf
- On Deck
- Lending Club
There are two types of private business investors who invest in the business and then hold a profit share.
- Angel Investor
- Venture Capitalist
Here comes the primary difference between the two types of investments:
Angel investors are financially stable, and they have sources to help newcomers who want to establish their business. There are many Angel investment networks that are working for this purpose. You can also find angel investors through different online resources.
They invest money in their business and do expect great return on investment to get their money back.
Angel investors makes the major business investments to boost-up the company.
You can take help from the Angel Capital Association to find angel investors online.
Venture capitalists join the business when it is in the process of expanding. They do not invest their own money; instead, they have links with the lenders. They simply provide funds for a business.
They not only help financially, but they also provide guidelines to expand business at a high level. Just like angel investors, they also hold a share in the company.
5. Contact businesses:
If you are looking for a great start and the best outcome for your work. Then you need to contact different people from the same field who are already working.
It will help you to gain expert opinions for the establishment and growth of your business. You must attend the events organized by good companies. It will increase your chances to meet and interact with people who might find your work exciting, and they will be willing to invest money in your business.
Build -up your links with well-established companies as it will help you expand your business to raise good income in turn. Expert advice always helps a lot if you are a struggler.
6. Contact schools and colleges:
You can get linked-up with potential investors through the colleges or schools which offer the courses relevant to your business.
You can visit such institutions and meet the course funders and motivators. It will help you to introduce your business plans to them. If they find your work profitable, they will invest in your business.
Crowdfunding is the process of raising small funds from a larger group or groups of people for business.
Several crowdfunding sites are working for the same purpose.
There are different ways for crowdfunding, some types of funds are:
- Peer to peer
Here you offer free rewards to the funders or investors from the start-up.
It can be your products or services which you offer as a reward. It will motivate investors.
It does not have any adverse effect on your profit. Instead, it will attract more funders for fund increase.
Peer to peer lending:
It is just like a loan offered by different lending sites. The only difference between bank loans and peer-to-peer loans is that you have to pay less interest to the lending company as compared to the bank interest.
It will help you establish your business with easy terms and conditions.
A lending person or company does not hold any share in your business. They are only concerned with their money back with interest.
Suppose if you are helping needy people through donations. Then you can raise money by donation-based funding. People will donate funds to help such people whose insurance money is not enough.
This money helps in projects like; disaster management, accidental losses, serious ailments, etc. People suffering from such issues deserve this money, and there will be no return or profit policy.
It is a type of crowdfunding where an investor invests money and owns that business. The investor won’t get his money back, but he does hold a share in the profit.
It has a drawback that if there is no profit in the business during start-up, then an investor won’t receive any share.
On the other hand, if a business does well, an investor might be getting a considerable share within a few years.
What attracts investors?
Investment is a big decision that depends on many factors. Every person who is investing money somewhere is concerned about long-term advantages.
Investor keeps these few things in his mind while investing his money:
- Planning and execution of a business plan
- Complete analysis of product and business idea
- Educational competency of the management team
- Financial details including
Mark-up, expenses, profit, and financial flow
- Success rate
- How to detach from business when needed
What is a fair percentage for an investor?
There is no such set percentage you can set for investors. It depends on the type of business you own.
If it’s a small local business, then you can adjust between 20 to 30% of income for investors. If the company is good enough, it must be more than that depending upon its investment.