Obtaining money to grow or sustain your nascent business has become almost as challenging as running that business as corporate banks have reduced their lending. Due to increased regulations and an overly cautious lending environment (according to some), banks require more paperwork and more thorough vetting when applying for small business loans than they did 10 years ago.
In order to get money they need, businesses have had to get creative and turn to third-party financial institutions such as invoice factoring companies that offer factoring receivables as well as unsecured business loans, credit card factoring and other small business financing options.
Angel Investors Provide Funding For Small Business with High Growth Potential
Another popular, yet tough-to-get small business financing source is angel investing. Though it may be sought after by many a bright-eyed companies, it should be noted up front that such small business funding remains difficult to obtain. Angel investors are primarily interested in businesses that have potential for great, long-term growth (tech companies are popular with angel investors). If you run a dry cleaning business, for instance, with year after year steady, predictable revenue, it is unlikely an angel investor would be interested in helping you. As such, this type of small business funding is often simply out of reach for many “average” small- to medium-sized businesses.
Getting Small Business Finance Requires Turning Over Equity
Yet for those who dare to go boldly, the rewards can be considerable. Going after small business financing from an angel investor, however, can take a lot of time, preparation and maneuvering. You or your top sales person will have to deliver an engaging yet informational pitch selling the investor on why they should invest in your business. Knowing your numbers is essential to this process. In return for the money, which can vary from $50K to $500K and more, your contract will give them equity in your business, generally between 10 to 50 percent. As this is a substantial exchange for the small business owner, the investment should not be entered into lightly.