The utilization of external funds has always been there, always a given, for small and medium-sized firms since time immemorial. And, to be frank, it’s seldom the least of worries to most businesses concerned. Sources of financing can be either debt or equity; they can either be internal or external. However, there are some drawbacks to using outside capital that should be mentioned before you dive into financing.
The standardized procedures of lending and receiving money make it so. Inherently dangerous to go out and ask an individual angel investor for a loan. Compared with the use of an institution like a bank or credit union.
A critical element of successful fundraising is aligning yourself with your audience and crafting your story so that you appeal to their. Interests without giving them anything they can misconstrue as selling out. Keeping this in mind, don’t raise money from someone. Who doesn’t understand your business or venture – or you might find yourself stuck on square one
If you do go about fundraising through an individual angel investor, take these pointers into consideration:
Prepare your story.
Know your audience.
Make it worth their while.
With that in mind, there are certainly some valid reasons to utilize external financing. On a very limited basis for new businesses or products/services you wish to test on the market. For instance, utilizing angel investors as opposed to debt financing on product/service launches. So you can see how customers respond to it without having to repay a creditor with interest. While this is not the traditional use of outside capital. It can be a helpful tool for learning about your market and gauging consumer response before going into debt. External financing will still have its disadvantages. But using it in a targeted fashion might save you money and headaches in the long run.
If you are looking for outside financing. Do your diligence before approaching someone with your offer. Due diligence is always recommended at all stages of business. But it becomes an imperative step if you are using outside capital. Make sure you know why they are interested in what you have to offer and your expertise. Not only in the industry of your business, but on whatever you happen to sell. Angel investors tend to come with very specific interests. Know their potential concerns, so make sure you address that in such a way so you present yourself to yourself at more of an opportunity of a successful business
Borrowing money
Borrowing money from an angel investor should always be done as a last resort. If it’s not that, then you probably ought to turn around and go back the other way. The reasons for this are twofold: Angel investors have expertise in an industry, which means that their knowledge may just be unmatched by that which a bank or credit union can offer. Think long and hard about if one angel investor is worth losing out on a more. Traditional loan from a bank or having a more workable debt repayment plan from a creditor.
External financing
External financing should be used sparingly and with the utmost prudence. The last thing you want to do is give up equity in your business if you don’t have to, so take baby steps if necessary. If angel investors are not where you want or need to be, then move on to banks or credit unions. Approach them with the same strategy you used when approaching angel investors. But do not be discouraged if it takes a little more time and effort-your future business will thank you for it.
External financing should only be sought as an absolute last resort. Why?
It has some serious disadvantages compared to other kinds of financing. Because of the equity you have to give up and the lack of negotiating power. If you absolutely need outside capital and there is no way around it. Make sure you do your due diligence and know exactly. What it is that they want from your business before signing on the dotted line.
Remember that most angel investors will be very hands-on with their investments. And it will be difficult to avoid giving up equity. However, because of the lack of negotiating public power businesses. Have with angel investors and the lack of outside. Financing options for public businesses. This is where many business owners turn.
The most important thing is to note that no matter the kind of financing you go for. You must find a way to repay your creditors. Acquiring debt without having a clear plan for paying back creditors is an oversight in and of itself. It can also be fatal for the long-term viability of your business. And though outside financing has its advantages, be sure of what you are stepping into before jumping into the game.
