Seeking Investors for Small Business
In the United States, banks are still the most popular way to get startup
money for a new business. However, despite their popularity, most money comes
from private loans, usually among friends and family. And while venture
capitalists and angel investors are finding new projects to fund every day, even
they don't compare to private investment.
The reason for this is simple: it's a lot harder to get money from them, and they often don't know what they're doing.
Private investors for small business startups are a really good consideration when it comes to searching for funding. Often they will do the same due diligence and require the same information that the banks do, but they tend to be specialized in the field that they're investing in and have a better idea of how your ideas will translate into actual business. For example, a private investor might have spent several years working in and running restaurants, so they would be better able to understand the pros and cons of your restaurant idea than a bank loan officer whose only experience with restaurant management is that he orders a lot of take out.
The other advantage of seeking private investors for small business over a venture capital firm or angel investor is that they often give you the freedom that a bank loan does. Venture capitalists usually look for large pieces of your company in exchange for funding it now, demanding equity rather than debt financing. Angel investors may require a place on your board of directors or want to take part in the day-to-day operations of the business in order to make sure that their investment is safe. Private investors usually don't require such a direct interaction with the business and tend to prefer debt financing so they can maintain a lower profile in regards to the company.
Which leads to the problem of finding an investor for your business. Many private investors aren't very vocal about their ability to lend in order to ride the line between "investor" and "venture capitalist" or "bank." Generally, private investors are found through various types of business capital brokers. These are people who maintain networks of hundreds or thousands of people who have money to lend in various industries and can point a well-developed idea to a lender that might also find it intriguing. Many entrepreneurs get their start by finding a good broker and pitching them a proposal that might interest a client.
Private investors are a smart, alternative way to go about seeking funding for your business. It's worth the time to contact business capital brokers with your business plans and show them your ideas. The banks may not understand your idea and venture capital firms may want to run your idea their way, but trying to find a private investor means you're probably speaking to somebody with the same base of knowledge as you, who can see your idea in the context that you can, and hopefully will be willing to help you make it a reality.