Venture Capital, Business Loans and Angel Investors Explained

Business capital loans provide an entrepreneur the necessary funding to get a new venture on its feet. Depending on the type of company, a different type of loan and different size of investment is necessary. For example, an Internet company has a low initial cost while a manufacturing plant requires very high initial capital. Following a process to start a new business, or revamp an existing business in some cases, will ensure your business has enough funding to succeed.

Writing a Business Plan

Create an accurate business plan showing how much funding is needed for equipment, office space, salaries to employees, and other expenses before you start the funding process. Take into account the areas of operations, production and marketing to determine an estimated amount of capital you will initially need. Show how you will distribute the capital to each area of your new business. Your business plan should also address financial projections for at least one, three and five years out. It is important to understand very few businesses are profitable during the start-up phase. Planning to be in debt for a certain amount of time is acceptable and, in most cases, expected. A well-composed business plan will provide for several funding steps along the way, not just the initial loan.

Seeking Angel Investors

Angel investors are the first group of lenders you will approach with your new business plan. This group includes friends, family, business associates and individuals who you know personally. They will provide the base needed to simply get your phones ringing at your new company. Many people shy away from calling in personal favors during the angel investor stage. It is important to remember, though, your business will pay interest on all loans. Typically, the loans made by friends and family are available at a lower interest rate and with more flexible deadlines than those from traditional lenders. Using angel investors gives your business a better chance to succeed because of the lower interest rates. You are not asking for a handout. You will pay these people back with interest but at a lower rate than you would pay a bank.

Locating Venture Capital

Every dollar from your angel investors should be poured into the business. Once you start generating a revenue, though, it is not time to pay yourself a nice salary. Use the initial revenue you bring in grow your business capital. Acquire an office space or professional equipment. Once you have a business making money, approach venture capitalists to invest in your expansion.

Venture capital is a term used to describe funds from individuals who do not have a vested interest in you or your firm prior to giving you money. You can locate venture capitalists through charity benefits, professional associations, or even pitching to wealthy business owners in your area. Show them how much you initially received from your angel investors, where this was spent, how quickly you made the money back and what the new funds will be used for. Again, use your business plan at every opportunity. As your business succeeds, display your revenue and projected revenue as part of your business plan.