Guest Post by Fonthip Maspithak
While some entrepreneurs are fortunate enough to be able to borrow seed money from family and friends, others have to seek out alternative sources. Angel investors and crowdfunding sites are the banks of today, showing up just in time to help out small business professionals that have little luck with satisfying strict bank loan requirements. Additionally, in most situations, business leasing has replaced the need for financing equipment as a method for obtaining needed equipment.
Angel investors are individuals that invest in businesses in anticipation of a healthy return. Entrepreneurs typically pay interest rates 10 percent or higher for this capital. In some cases interest rates as high as 50 percent have been reported. The amount loaned by angel investors usually averages between $300,000 and $5 million.
Finding angel investors is not terribly difficult if you know where to look and who to ask. University towns tend to be a good geographic hotspot for this source of funds. College professors that run entrepreneurship programs can oftentimes tell you where to find angel investors.
Informal groups called angel confederacies are a close-knit group of angel investors who often socialize and network with each other. For investors who enjoy a lower profile than a venture capital club offers, angel confederacies offer the camaraderie of like-minded risk-takers. While it is not always easy to find these groups, once you do, it can open doors to as many as 30 or 50 investors at a time.
Business incubators and venture capital clubs are two other possible sources for business capital to get a business off and running. The National Business Incubation Association reports that there are about 1000 of these groups located throughout North America. Both business incubators and venture capital groups look for the next good deal, actively seeking out entrepreneurs in need of capital.
An exciting new development on the funding front is crowdfunding. This relatively new source of capital offers individuals an opportunity to support new businesses. According to Entrepreneur’s online blog, $2.1 billion dollars were invested into businesses via this method. Most crowdfunding transactions take place via the Internet. Entrepreneurs get to “pitch” their business proposition to any interested investors with the capability to connect with thousands of individuals interested in helping.
There are many crowdfunding platforms that entrepreneurs can utilize for promoting their business. In the same way different banks specialize in different types of loans, crowdfunding organizations tend to work in different niches. Four of the largest and most popular sites of the estimated 300 of these platforms are Kickstarter, Indiegogo, CircleUp and Crowdfunder.
Fortunately many startups find that financing equipment is one of the easier challenges they face. If an entrepreneur is willing to personally guarantee an equipment lease and has good credit, he can typically meet equipment needs without to much resistance. The terms of an equipment lease usually run from 12 to 60 months, giving a startup business plenty of time to establish credit for a future purchase or another lease.
New business startups often struggle with obtaining much-needed business credit. In response to this demand, crowdfunding and angel investors offer unproven entrepreneurs a chance to obtain the money they need to chase their business dreams. With these resources, entrepreneurs are no longer forced to rely only on family, friends and restrictive bank lending in order to start a new business.
This has been a guest post from Bay Bon Finance, the small business loan and equipment finance experts.