Before you start raising capital, it is important to understand the full range of options for financing your business. Each type of capital – bank debt, sub debt, royalty and equity – has its own benefits and tradeoffs. As a business owner, you need to choose the right type of capital based on your business’s needs. That may involve a combination of types of financing, which will likely change throughout your business’s evolution.
If you need money to start a business, consider family and friends first. They not only know you well and want you to succeed, they may also accept a lower financial return than most business lenders or investors would expect.
Is your business ready and appropriate for equity financing?
While ultimately your company's appeal will be determined by the quality and experience of your team and your business growth proposition, it is also determined by the type of business you have and its goals.
Type of business
If you sell a service or product that solves a critical problem for your customers you might attract equity investors. But if your business attracts customers by offering a less-expensive product or service, or by offering a product that is “nice to have” but not critical, and you gross profit margins are less than 20%, investors won’t find it appealing. This doesn’t mean that it isn’t a strong and profitable business, it just means that raising equity investment is not likely.
If you want to be “first to market,” sell the business at the maximum price within the next two years, and you don’t mind adding an investor who will be a decision-maker, you may be a good match for equity. If you want to retain total control of business decisions, achieve steady growth and pass on the business to your employees, you will not be attractive to an outside investor.
If you want to raise capital from an equity investor whose goal is profit, be specific about how investing in your business will help the investor make money: how and when they will see a return. Too often, business owners spend too much time pitching the “bells and whistles” of their product/service and not enough on why and how their business represents a great investment and what the investor can expect to earn.
If you are looking for equity and want to go beyond family and friends, here are some New Hampshire-based angel groups to contact:
eCoast Angel Network
North Country Angels
If you are looking to raise more than $1 million, you might also consider a number of venture capital funds, including New Hampshire-based options Borealis Ventures and Harbor Light Capital Partners.
If you are not appropriate or interested in equity, here are other potential sources of startup loans:
ACCION USA is a microfinance organization that empowers business owners with access to working capital and financial education. ACCION provides startup loans of up to $30,000 to businesses that have operated for six or more months, but that are not yet profitable. Loan requirements include:
- Six months of business revenue
- A qualified cosigner
- Market study and 12 months of projected financials (or a business plan)
- If the business is not yet profitable, borrower must have external income that is fully able to support the loan. If this income is spousal income, the spouse must sign on the loan
Local economic development offices
Cities in New Hampshire that have economic development departments may also offer revolving loan funds. Two examples are Manchester and Nashua.