Anonymous asked in Business & FinancePersonal Finance · 1 decade ago

How Do you find a financial backer for a small business?

I have previously owned a small business, it was very successful but one of our trucks completely died and the other kept needing repairs that the company we leased the truck through was supposed to fix for us. They never fixed the problems so we gave the truck back. Unfortunately now that is considered a repossession and I declared bankruptcy due to never incorporating my business. I have the opportunity to get started again, and I still have my major contract. I can provide additional information to anyone interested. I just don't know where to look. This is my life dream, if i had even 5,000$ last time I could have fixed my truck and never went bankrupt. I want to do this right, and be successful. I am a hard worker and until the problems with that truck my credit was immaculate.

5 Answers

  • 1 decade ago
    Favorite Answer

    First, I congratulate on your entrepreneurial spirit and determination.

    Second, I would advise that you learn from your mistakes, but don't dwell on them.

    Now, the good stuff. The first thing that you need to is understand the idea of "planning" your business. You need to consider a formal business entity structure both from the position of liability and from the position of taxes and other financial concerns. Formation as an LLC or Corp. can help avoid situations like your past one that led to a personal bankruptcy. Most likey, you will find an LLC sufficient for your needs and optimal in consideration of requirements for maintenance of the entity. Moreover, the pass through taxation aspect may appeal to you as well. In any case, consult an attorney or do your own research regarding available structures in your state.

    Next, you need to consider the capitalizaton of your business. Many businesses fail due to under-capitalization,and it appears as though this may have been an issue in your past. Put simply, this means that you need enough money to get the business up and running and keep it that way. You need to have "enough" money so that you can meet the bills that are to come and to support the business until the business can support itself. Like business entity choice and formation, this should be part of your business plan.

    Insofar as actually raising this needed capital is concerned, there is (1) debt financing and (2) equity financing.

    Debt financing is a loan. Basically, you go to a bank or other financial institution or person with money to lend and ask for a loan. It sounds as though as a small business you likely need a relatively small amount to get started, so an SBA loan may be optimal. Insofar as banks and SBA loans are concerned, you should expect to be required to provide 25-33% equity in the venture, assuming you meet the lending guidelines. This means, that if you need $100k for the business, expect to contibute 25-33% of that yourself in order to secure the loan. You can use equity in your home, investments, and a host of other assets to "put up" as collateral toward the venture, as well as plain old American cash. Now, an SBA loan is NOT money that the govt loans to you, but is a loan that a lender provides, subject to standard guidelines, that is basically secured by the government for the benefit of the lender. All of that said, it sounds like you will likely need to improve your credit score and/or secure the equity needed for the loan if you elect to pursue debt financing.

    Equity financing, on the other hand, may be a better option for you, assuming that you have the wonderful, can't miss business that you think it is. Equity financing is basically selling a piece of the business to an investor. So, let's say you find someone with money. You do your plan and figure you need $100k. You may "sell" a half interest in the business to someone for say $100k, and you do all the work, execute the plan, etc. This "partner" may be silent or may want a more active role. Either way, you may be looking for an "angel" investor who helps you to realize your dream.

    Keep in mind, however, that there are consequences to either approach. Debt financing, although it may be a debt of the business, may likely be personally guaranteed (translation: you still have responsibility in the event of the business' default), and in any case, may subject you to losing the collateral. However, once paid, you don't owe anyone anything and the business is YOURS. Equity financing, however, requires you to give up ownership interest, but at the same time does not have to be repaid. The investor is "betting" on your success. And, if you succeed, the investor owns a chunk of your business--period.

    In your case, what you may want to consider is some sort of combination--find a partner who has good credit and maybe can contribute some of the needed equity and maybe you get an SBA loan, secured by the necessary collateral, maybe using the partner's credit. A fair exchange may be your putting up the equity and the partner putting up the capital. This may work, but really depends on the lender's guidelines.

    Finally, as it appears that you have a customer base/contract and have experience in this business, you may have a stronger business plan than you think. What you should be careful about is underestimating contingencies as you did in the past. If you are asked about "what happened" in the past, be honest and explain that you failed to adequately plan and capitalize the venture and have learned from that experience. Meanwhile, your skill/expertise in the underlying "thing" is outstanding, and you just need to make sure that you have the proper foundation and structure in place so that the business can be viable and grow into a self-sustaining and profitable venture. Your capacity to do "the thing" is most definitely a consideration in the financing process. After all, who would invest in a chef's new restaurant if the chef can't cook or if the cook never went to cooking school and has never ran a restaurant before, but is basically a pipe-dreaming accountant? The fact that you can do "it" is important and should give you hope.

    In any case, I wish you the best and hope that I provided some useful information.

    Source(s): Me.
  • 5 years ago

    This Site Might Help You.


    How Do you find a financial backer for a small business?

    I have previously owned a small business, it was very successful but one of our trucks completely died and the other kept needing repairs that the company we leased the truck through was supposed to fix for us. They never fixed the problems so we gave the truck back. Unfortunately now that is...

    Source(s): find financial backer small business:
  • 1 decade ago

    Try to find partners with a truck have the company lease their truck from them and both of you do the work, split the profits after the lease payment.

    If your prior truck wasn't repo'd but they offered to take it back instead of repairing it then have them remove the false information from your credit report.

  • Mary
    Lv 4
    5 years ago

    You could go to the bank. Some investors are advertising online and in magazines. You could try to get a grant to start your business.

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  • Justme
    Lv 4
    1 decade ago

    Do you have a disability? There are often funds available to people with disabilities. we have such a program in my office building. otherwise contact your city's business advice centre and see what they suggest. good luck.

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