How to Find a Financial Backer

Finding a financial backer is important if you want to start a new business or expand your existing business. Whether you look to a private investor, a bank, or an alternative lender/investor, there are several steps involved in securing financial backing for your business.

How to Find a Financial Backer:

1. Consolidate assets and save your own money.

Before you look for other sources of funding, take stock of the value of any assets that you own. It's important to have a record of your assets in case one of your lenders requires you to post collateral when you take out a loan. For investors, valuable assets show that your business is worth something and has liquidity in case debts need to be paid off.

Another important step is to save your own personal money so that you can invest in your business. This shows lenders and investors that you're personally invested in what you're doing and that you already have some cash flow to work with.

2. Write a business plan.

If you want to secure outside funding, a business plan is essential. Investors and lenders need to see your business plan to know that you have a viable business idea. This will assure them that their investment is worth the risk.

Check out our free business plan template to get started.

3. Decide what source(s) of funding best suit your needs.

First, you need to decide what sources of funding suit your current business needs. This will probably depend on factors like your credit rating, what collateral your business can put up, and how much money you need to take your business where you want it to go.

Possible sources of funding include:

• Banks.
• Private investors.
• Small business lenders.
• Memberships.
• Equity shares.

4. Approach investors/fill out applications.

If you are seeking traditional term loans through a bank or some other financial institution, all you need to do is contact them directly and fill out applications for whatever loans suit your needs. This usually involves submitting supporting documentation like a cash-flow statement, profit and loss statement, etc.

If you are looking for private investors, things are not as straightforward. Investors fall into different categories, and each of them must be handled differently. The three main types of private investors are:

• Venture capitalists: Venture capitalists are firms or individuals that are able to inject millions of dollars into an already established business with significant revenue. Venture capitalists charge interest on their investment, which is usually garnered from profits.

• Private equity investors: Private equity investors buy a stake in your business, giving you more access to cash as you can put their investment to work immediately. The downside of selling equity in your company is that you are also relinquishing a portion of the ownership to a third party.

• Angel investors: Angel investors are individuals with a net worth of over $1 Million, or an annual income in excess of $200,000. These investors may offer smaller amounts than venture capitalists, which is useful when a company is in its first stage of growth.

5. Agree to repayment terms.

Once you have found an investor or lender who is willing to give you the money that you need for your business, it's time to sign a contract and agree to repayment terms. Repayment terms may vary widely based on the type of lender/investor you've chosen, and the amount of money that you have borrowed. In any event, you should add your repayment to your budget so that your business does not fall behind.

6. Put your new financing to work.

Anyone who has given or loaned you money for your business expects results, so you need to put your new injection of funds to work right away - whether that means purchasing new equipment, hiring more employees, or buying a property. If you manage the investment well, your business will grow and you will be able to satisfy the requirements of your investors.