Debt funding is normally cheaper and easier to find than equity funding. Debt typically carries the burden of monthly payments, whether or not you have positive cash flow.
Equity investors expect little or no return in the early stages, but require much more extensive reporting as to the company’s progress. They have invested on the gamble of very high returns. Therefore, investors anticipate that goals and milestones will be met.
Debt financing is usually available to all types of businesses. Equity is generally restricted to businesses with fast and very high growth potential.
Debt lending is more analytical than personal. Are your ratios right? Do you have the assets? Are you credit worthy?
Investors will want to take a much larger share of a start-up venture, than they will of a company with a two or three year track record of success.
Angels are found among friends, family, customers, professionals, suppliers, and competitors. Once they invest in two or three deals they are out of money. There are a few private investor locating services out there. Beware of those who charge large ($1,000+) advance fees in order to put you in touch with investors. Do your homework, check these people out and negotiate a commission if your request is placed. BusinessFinance.com has a search tool to locate accredited investors near you and then you can buy a list of contact names. It’s a place to start.
Caution: Don’t advertise in your local paper for investors until you have spoken to a securities attorney, or the Securities Exchange Commission will give you a call.
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