Search for Small Business Loan Sources and receive your matched lender listSearch for Small Business Loan Sources

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 Considerations

  • For what type of debt financing can my company qualify?
  • How much debt can I afford?
  • Can I handle the payments if cash flow is off?
  • What happens if interest rates rise?
  • Am I willing to pledge company and personal assets?
  • What about my personal guarantee?

Debt lending is more analytical than personal. Are your ratios right? Do you have the assets? Are you credit worthy?

Equity Considerations

  • What type of investors do I target?
  • Am I willing to share control and future profits?
  • Do I really want investors as partners forever?
  • How big of a share am I willing to give up?
  • Will I be able to keep up with all the required reports?
  • What about disclosing company secrets to potential investors?

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
Angels are individual private investors who make up a large portion of "informal" venture capital. These investors tend to keep their money close to home (50 miles or so). They invest small amounts ($10,000 to $250,000) and they are difficult to locate because they usually don’t belong to networks or trade associations.

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.


Left Green Arrow PREVIOUS PAGE
Table of Contents
NEXT PAGE Right Green Arrow Page 30 of 37
Click Here to download this book in PDF format.

Search for Small Business Loan Sources and receive your matched lender listSearch for Small Business Loan Sources