Funding & Investors refers to the process of getting capital for a business before it starts operation. Funding is one of the most important aspects for any new business. It is also one of the most misunderstood. Often I find that investors will invest in a business and then disappear when the cash flow begins to fall. I want to take a minute to explain how funding & investors really works.
Many people will become investors simply because they have a stake in the company, even if they are an owner. For example, if you have been looking at starting a craft business, you may feel that you have to get funding in order to get the tools that you need to get started. Most craft dealers or artists start their businesses as workers and then add on owners later.
Typically, entrepreneurs work with local investors or banks to obtain the funds they need to launch or expand their business. The investors provide credit or lines of credit that are used to make the business start operations. The credit lines are repaid when the business begins generating profits. This setup allows the business to receive a loan from multiple lenders to keep it going. The key is for the entrepreneur to repay the loans with the same amount of interest and with enough capital to keep the business going.
The process of obtaining a loan is referred to as fundraising. Funding & investors typically provide small amounts of capital that are based on the value of the business. If the company makes profits, investors receive larger returns. However, investors aren’t always right. In fact, there are thousands of investors out there just waiting to invest in a startup that isn’t headed in the right direction. Thus, it is important for the entrepreneur to do the proper due diligence in finding funding sources.
Once investors are approved for funding, they are responsible for repaying the funding according to the terms of the agreement. Investors generally receive either partial or full repayment of the funds. In some cases, investors may have to pay a small exit fee. This fee is imposed to ensure that the company makes a profit at the end of each year. It also provides protection to the investor by protecting the business from creditors who may come after it in the future.
When searching for funding sources it is important to determine if the source of funds is reliable. The best place to begin the search is online. A simple Google search can provide investors with a list of potential funding sources. Additionally, a visit to an online finance website can give more information about potential funding sources. These websites generally require a small fee for membership which can then be used to access their loan books.