Invest Equity Capital Money

How much money do you have to invest in your business as equity capital? Look at your savings, stocks, bonds, cash value of life insurance and equity in real property. How many of these assets you are willing to put into the business as equity capital is a personal decision. However, you must put at least some of your own money into the business. If you don’t have enough personal capital, then your first business sale will be selling a lender or investor on your proposal. Your selling ability is very important in determining the type and size of business you can enter.

There is no one best method of raising capital. Financing methods will vary as a result of legal, legislative and economic changes. Your success in raising funds for a new business depends on good planning, realistic forecasting, and knowing what sources of capital are available.

To raise capital for your new business, you should be able to answer four questions.

1. How much capital will I need?
2. How much of my own capital can I put in the business?
3. How much capital can I get from someone else?
4. How can I convince someone to provide me with capital?

Planning your financial needs - Your ability to plan the financial needs of your new venture will play a big part in how much capital you will be able to raise. Prepare a loan package that includes your business plans, market analysis, projected balance sheet, profit and loss projections, and cash flow projections. Lenders prefer these financial projections monthly for at least one year, and then annually for three years.

The amount of detail and research needed in the financial projections is directly related to the amount of outside capital you hope to secure. In addition, a loan package must include the amount of the loan, how the loan money will be used, when the money will be needed, when the loan will be repaid, the source of repayment funds, and the amount of collateral you have to secure the loan. You should also include the amount of equity capital you are personally investing in the business venture.

Another part of the loan package should be personal information about you and anyone else involved directly or indirectly in the new business. Don’t assume the potential lender knows this information. Even if you have known each other for years, the lender may not have an accurate picture of your personal history and current financial situation.

The personal information included in the loan package should include education, work history and business experience of everyone involved in the new business. You should also include credit references, personal income tax statements for three years and updated financial statements. Information about the nature of the loan and personal histories of those involved may be a major factor in getting the loan.

If you seek professional help with the financial projections and loan package, it is vital that you be totally familiar with the financial information. Your knowledge and understanding of the loan package will be important when the lender evaluates it.