Debt and equity capital are two very different types of funds that allow an organization to accomplish its objectives. Debt capital is borrowed money that must be repaid in full with interest at regular intervals. Equity capital is money that is exchanged for some share of ownership in a company. Debt and equity transfers usually involve money, but can be anything of value the entity requires and finds acceptable, such as highly skilled labor or specialized equipment.
Determine if lenders can secure your assets for a loan. Possible lenders include banks, specialty finance companies, title and vehicle loan companies, pawn shops, your individual retirement plan and whole life insurance policy, government agencies or nonprofits. Lenders often insist on securing assets, called collateral, before granting loans to reduce their risk. To secure assets, the borrower must sign over ownership of valuable collateral to the lender until the debt is paid in full. For example, if a cab driver wants capital to purchase a vehicle for business, he must give the lending company the title or official ownership of the car while he keeps the automobile to earn income.
Seek out individual investors willing to be your business partner. Business associates or even employees who want to take an ownership role in a company contribute equity capital to become a partner. New partners can contribute their own personal funds or borrow money to gain the ownership level specified in the partnership agreement. Various types of organizations have a long history of accepting equity capital, such as certified public accounting firms.
Consider partnering with investors organized as venture capitalists and angel investors. Businesses with high-profit potential that are willing to give investors a certain amount of control may interest them. Venture capitalists and angel investors filter through many applicants to find a company they believe is an acceptable risk. In exchange for their money or capital infusion, they own a portion of your company.
Send your business plan to the venture capitalist and angel investor. You can find a list of venture capitalists and angel investors by searching their trade group's membership directory. Trade groups act as advocates and as a forum for information exchange among business members. They also provide the public with information about their profession or industry. Venture capitalists and angel investors will study your business plan and, if interested, contact you. Legitimate venture capitalists and angel investors do not charge fees to read your business plan.
Utilize business networks by seeking referrals to venture capitalists, angel investors and individual business partners to increase your opportunities. Consider credit cards for funding, as they generally do not require collateral. Seek out information about other types of capital and resources at the U.S. Small Business Administration.
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