Raising finance to buy a business can be a challenging and complex task. Due to the sums of money required, it is rare for businesses to be able to rely on their existing cash flow to fund the acquisition, meaning it’s time to consider external funding sources.

According to a recent study, over 94% of new businesses fail during first year of operation. Lack of funding turns to be one of the common reasons. Money is the bloodline of any business. The long painstaking yet exciting journey from the idea to revenue generating business needs a fuel named capital.

Now, when would you require funding depends largely on the nature and type of the business. But once you have realized the need for fund raising, this article contain some of the different sources of finance available.

• How Can I Raise Money to Buy a Business?
• What is Raising Money For Business Called?
• Can You Buy a Business With no Money?
• How Can a Small Business Raise Money?
• How do Startups Raise Funding?
• How Are Raising Money Through Equity and Debt Similar For a Business?
• How Can I Buy a 10 Million Dollar Business?
• How Much Down Payment do You Need to Buy a Business?
• How do I Purchase an Existing Business?
• What is The Most Cost Effective Way to Raise Money?
• How Can I Raise Large Amounts of Money?
• What is Angel Equity?
• How Can I Raise Money Fast?
• How do You Build Capital?
• Why do Companies Prefer to Raise Money Through Debt Not Through Equity?
• What Are The Basic Sources of Funds For All Businesses?
• Why do Companies Increase Equity Instead of Debt?
• Can I Buy a Business With 5% Down?

How Can I Raise Money to Buy a Business?

While money doesn’t grow on trees, there are a number of ways you can seek funding for your business—some more traditional than others.

Here are six ways you can raise the money you need to expand your business.

1. Bootstrap your business

Provided that your business isn’t operating in an industry that requires lots of startup capital, like manufacturing or transportation, you can potentially fund your own venture—and it may be more feasible than you think.

Read Also: Open Your Own Franchise To Earn Income

For instance, even if you don’t have enough in savings to run the operation, you could get a 0% / low interest APR business credit card, offering you the chance to borrow cash for a period of time without incurring interest.

Perhaps you think funding the business yourself carries lots of risk—and it does. But it’s important to consider your potential.

Brent Gleeson, a leadership and team building coach specializing in organizational transformations, states, “if you believe in your vision and have an absolute refusal to accept failure as an option, you should feel comfortable investing your own money into the business.”

Investing some of your own money will usually make investors and lenders more willing to partner with you down the line.

2. Launch a crowdfunding campaign

There are many crowdfunding success stories out there. And with the right product and pitch, you can be one of them.

For instance, in 2013, Formlabs, a maker of affordable desktop 3D printers, raised $3 million on Kickstarter. This capital allowed the company to scale their operation and achieve their goal of manufacturing affordable 3D printers for the public.

Eventually, the 3D printer maker caught the attention of venture capitalists. During a series A round, Formlabs closed $19 million in investments, giving them the chance to expand beyond their initial goals.

Crowdfunding gives you the opportunity to connect with like-minded people who you wouldn’t normally be able to engage. You can gauge interest in your product and understand what’s resonating with people and what’s not. This shows you how to improve your product and your pitch. Most importantly, crowdfunding can help you raise money to fund your business.

So, how do you launch a successful crowdfunding campaign to raise capital for your business?

Nathan Resnick, a serial entrepreneur who’s had success raising money on crowdfunding sites, stresses that you must develop your story, as “people on crowdfunding sites like Kickstarter or Indiegogo want to know how you turned your idea into a reality.”

Your video pitch must show the value of your product, the need it serves, and why you require support. Having a good website and doing PR outreach helps as well.

3. Apply for a loan

Even as technology creates new ways of raising capital, traditional financing products remain the primary way small businesses fund their operations. According to the Small Business Administration (SBA), almost 75% of financing for new firms comes from business loans, credit cards, and lines of credit.

Generally speaking, the small business loans with the most favorable rates and terms are going to be SBA loans and term loans from banks and other financial institutions. To get approved, you typically need to meet requirements like the following:

• You have been in business for 2 years or more
• The business has strong annual revenues (typically at least $100,000)
• Good credit (like a score of 640+)

These aren’t hard and fast rules and will differ depending on the lender. If you don’t qualify for a term loan with a good APR, there are other, albeit more expensive, types of funding available.

If you have outstanding invoices, you could opt for invoice financing to get that money faster. Or, if you need cash for machinery, tech devices, office furniture, or something similar, consider equipment financing.

Before applying for a small business loan, make sure to prepare any loan documents you’ll need to show ahead of time.  You’ll be asked to show a profit and loss statement, balance sheets, tax returns and bank statements. In some cases your personal information may be checked as well.

4. Raise capital by asking friends and family

Raising capital through friends and family is a viable option for many. According to the Global Entrepreneurship Monitor, 5% of US adults have invested in a company started by someone they know.

Caron Beesley, a content marketing specialist and SBA contributor, advises that you ideally select a friend or family member with solid business skills. She also suggests that you “narrow your list down to friends or family who have faith that you will succeed, who understand your plans, and who are clear about the risks.”

Once you’ve done that, Beesley stresses that you must demonstrate passion and due diligence by having a sound business plan and direction. Also, be realistic about how much money is needed.

Finally, make sure to agree on what form the funding will take. They could be a loan or equity in your company. If the money is a loan, agree to a repayment plan and use a P2P lending website to document everything and manage the loan.

5. Find an angel investor

By definition, angel investors are accredited individuals with a net worth exceeding $1 million or annual income of more than $200,000. They typically operate alone, but may team up with other angel investors and form a fund.

Knowing this, angel investors can be a good source of capital for your business. First, you must have a solid business plan put together and a great pitch ready. You have to capture their attention with enthusiasm and promising data points about your company’s current situation and future potential.

You may be wondering how you find angel investors. This might seem difficult, but many resources exist.

For instance, Funding Post arranges for angel investor showcases around the country. And the Angel Capital Association is a great platform to seek out, meet, and arrange pitches to angels.

6. Get investment from venture capitalists

Venture capitalists (VCs) typically want to invest in slightly more mature companies than angel investors and sometimes want to have more of a say in managing the day-to-day operations.

Since VCs have a responsibility to achieve certain returns for the firm or fund, they want scalable and cash-flow positive companies with proven and scalable products and businesses.

If your company satisfies these requirements, you could apply for an investment with a VC firm. It’s not the easiest thing to accomplish, but plenty of small businesses have done it successfully.

Your pitch is crucial to obtaining funding. Sequoia, one of the most successful VC firms on the planet, stresses, “you need to convey the main reasons why an investor should love your business in the first 5 minutes.” Sequoia partners state you can do this in three simple steps, which are:

• Explain what’s changed. Detail the innovation, industry shift, or problem that presents substantial opportunity for your company.
• Explain what you do. In one sentence, show how your company can capitalize on this opportunity.
• Explain the facts. Get to your company’s story and financials quickly. Lay out the opportunity with numbers. Discuss the team and their abilities and experience.

What is Raising Money For Business Called?

Self-funding, also known as bootstrapping, is an effective way of startup financing, specially when you are just starting your business. First-time entrepreneurs often have trouble getting funding without first showing some traction and a plan for potential success. 

You can invest from your own savings or can get your family and friends to contribute. This will be easy to raise due to less formalities/compliances, plus less costs of raising. In most situations, family and friends are flexible with the interest rate.

Self-funding or bootstrapping should be considered as a first funding option because of its advantages. When you have your own money, you are tied to business. On a later stage, investors consider this as a good point. But this is suitable only if the initial requirement is small. Some businesses need money right from the day-1 and for such businesses, bootstrapping may not be a good option.

Bootstrapping is also about stretching resources – both financial and otherwise – as far as they can.

Can You Buy a Business With no Money?

Buying a business with no money down is one of the hardest ways to acquire a business. However, it is possible to buy a business with no (or little) money down under the right circumstances.

Keep in mind that entrepreneurs who want to buy a business with “no money down” tend to be viewed with caution by business brokers. This is because a number of these entrepreneurs have unrealistic expectations. These expectations come from having little actual knowledge.

To be taken seriously, you must be prepared. Have realistic expectations and be knowledgeable. Do your due diligence. Show owners, brokers, and potential investors that you have done your homework.

Getting a no-money-down transaction is usually very difficult. Successful transactions of this type tend to be few and far between. However, there are ways to finance a business acquisition with no money down, including the following:

a) 100% seller financing

As the name implies, seller financing is provided by the person that is selling the business. The seller provides financing by creating a note that is payable within a certain number of years.

Having a seller financing component is usually a good idea for most acquisitions. They keep the seller indirectly tied to the business. This is because buyers usually make the payments using the cash flow of the new business.

However, few if any sellers are ever willing to finance 100%. They often demand that the buyer contribute funds as a payment.

b) Friends and family

We don’t encourage business buyers to get funds from friends and family. The easiest way to derail a relationship with a friend or family member is to ask for money.

If you decide to use friends and family, ask for the least amount possible. Combine it with seller financing and use friends and family to cover only the down payment. Also, do your best to repay them quickly.

c) Leveraged buyouts

One way to finance a business with no money down is to do a small business leveraged buyout. In a leveraged buyout, you leverage the assets of the business (plus other funds) to finance the purchase.

A leveraged buyout can be structured as a “no-money-down transaction” if one condition is met. The business must be sold for a price lower than the value of its assets. These can be opportunities, but they are very hard to find. Think about it. Why would a person sell their business for a value lower than its assets?

How Can a Small Business Raise Money?

It’s an unspoken rule in business that a great idea only goes so far. Eventually, you need money. But most startups and small businesses don’t have a bottomless bank account to keep them going until they’re in the black. What’s the solution? Raise money for business from outside sources.

1. Pre-Sale

Take a page from the big names in the tech industry and sell your products before they launch. Offering pre-orders ahead of your scheduled rollout date is a great way to gauge consumer demand and raise money for business at the same time.

A well-run pre-sale can provide much-needed funds to finance your business in the early stages of development.

2. Crowdfunding

Don’t want to give away equity shares of your business right from the start? Go the crowdfunding route instead.

Choose a crowdfunding website, create a pitch, share your business model, and offer incentives to interested individuals. Then, through the power of micro-donations, you can begin to raise money for your startup.

3. Credit Cards

Although it’s not the ideal way to raise money for business, credit cards can be a quick and easy solution to your money woes when cash runs low. With a business credit card, you can charge the things you need and write a check for the minimum payment each month.

Just remember to pay off these debts first when the business gets going or you’re going to get buried under sky-high interest payments.

4. Personal Assets

One of the most accessible ways to raise money for business is to use your personal assets. Tap into your savings or cash in a bond. Sell some valuables. Downsize into a smaller living space. Walk to work instead of driving or spending money on public transportation.

When you really start looking, you’ll find plenty of ways to use the assets you’ve got to build your business for the future.

5. Angel Investors

Angel investors are individuals with capital to spare who are willing to take risks on fledgling businesses if they foresee a significant return.

Another benefit of raising money for business through angel investors is that they are more willing to offer mentorship than straight investors or venture capital groups.

6. Strategic Partners

If you have a relationship with a supplier, distributor, or even a customer who can benefit from your product or service, it doesn’t hurt to ask them to get involved.

Help them see what they can gain by partnering with your startup, and they may be willing to cut costs, provide you with services, or invest directly in your budding business.

7. Venture Capital

If you need large amounts of money quickly, venture capital investors may be just what you’re looking for. Keep in mind that those investors will be with you until they recoup their costs (and profits) and they may demand a short payback time frame (e.g., three to five years).

8. Pay As You Go

Paying as you go — also known as bootstrapping — is a cost-effective way to make your company’s capital go as far as possible. With the pay-as-you-go method, every dime gets redirected into the business to pay costs and keep the lights on.

That means you may have to live without a paycheck for a while, but if you’re willing to sacrifice for the future, it’s a straightforward method of raising money for business.

9. Business Incubators

Another way to raise money for business is to get involved with an incubator. Business incubators provide money (small amounts), tools, training, and networking to startups and small businesses in their area.

Most business incubators are located in major cities, but don’t dismiss this option if you live in a small town. Do a little investigating and you may be surprised what’s available.

10. Share Risk With Your Employees

Instead of paying your employees a market salary (say $50,000 per year), share the risk and raise money for business at the same time by offering them $40,000 per year plus equity incentives of $10,000 to be paid later.

You can then channel the money you saved into making your business profitable sooner.

How do Startups Raise Funding?

Finding funds for a start-up business can be sometimes challenging and tiresome task. However, to make it simple for you, we have compiled a few important financing techniques that shall help you in finding finance.

1. Self-Financing your Start-up

Self-financing or personal investment is the best way of financing used by several business start-ups. Even when you take a loan or ask a venture capitalist or government entity to provide funding for your start-up, they still have this question; how much capital you shall be investing in your start-up?

Investing your own savings is the best option for first-time entrepreneurs. In the later stages of business, you can easily opt for business loans and lenders shall not have a reason to deny it, as they will consider the stability of business, as it will be low-risk factor for them.

2. Getting an Angel Investor

Individuals with surplus cash are known to be Angel investors and these individuals are interested in investing in new start-ups in India, as well as worldwide. The risk involved in these investments by Angel investors is more, as compared to loans offered by financial institutions, as Angel investors plan to invest for higher returns to profit.

India’s popular Angel investors include Mumbai Angels, Indian Angel Network, and Hyderabad Angels. Start-up owners can directly get in touch with these investors for funding support.

3. Crowdfunding Support

Crowdfunding is a concept of collecting funds from multiple investors via social networking sites and web-based platforms for majorly business purposes. Online Crowdfunding web portals raise funds for various other purposes like social causes, charities, ideas, disaster relief, events, etc.

This concept or idea helps in raising funds for start-ups or first-time business owners and also promotes social and cultural causes. India’s leading Crowdfunding platforms include Kickstarter, Ketto, Catapooolt, FuelADream, Fundable, Indiegogo, Milaap, Wishberry, etc.

4. Loans under Government Schemes

The government of India has launched various loan schemes that aim to benefits Start-up enterprises, SMEs, MSMEs, as well as promotes the socio-economic growth of rural India, women entrepreneurs, educated youth, individuals from SC/ST category, Small Scale Industries (SSIs), villages, people living in rural and urban areas, etc.

Loan schemes initiated by the Government of India to help Start-up enterprises include the MUDRA loan scheme under Pradhan Mantri Mudra Yojana (PMMY), Start-up India, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Stand-up India, Atal Innovation Mission, Make in India, Trade-related Entrepreneurship Assistance and Development (TREAD), etc.

5. Loans from banks

Banks are considered to be the first priority for start-up enterprises, as they find it a more reliable and convenient way of getting money. Banks provide funding to start-up enterprises in two forms named term loan and working capital loan.

Almost every public and private sector bank of India offers business loans for start-ups. However, the interest rate, loan amount, and repayment tenure offered shall vary from bank to bank.

6. Small business loans from NBFCs, MFIs

If you are new to lending and do not have a financial history or maintain any credit score, then it shall become difficult to get loans from private or public sector banks. By contacting Non-banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs) you shall get business loans for your Start-up based on your requirements without having a credit score or financial history. The interest rates offered by NBFCS and MFIs are comparatively higher, as compared to PSU banks.

7. Business credit cards

Credit cards for business purposes have taken a rise since the emergence of start-up enterprises in recent years. If your start-up does not require large amounts of money at the initial stages of business, then you can use credit cards for transactions and timely repaying the amount to avoid debt or extra interest rates charged in form of penalties.

8. Peer-to-Peer Lending

Peer-to-peer lending is a type of money borrowing where no intermediaries are involved in the whole process. Lenders lend money to borrowers as their investment and borrowers get money at their disposal to invest in their Start-up.

In this process, lenders can earn from borrowers, as the interest rate offered is higher, as compared to banks, NBFCS and MFIs. Peer-to-peer lending institutions are regulated by RBI for the betterment of both lenders and borrowers. For start-up enterprises, peer-to-peer lending is a type of loan, whereas for the lender it becomes an investment.

How Are Raising Money Through Equity and Debt Similar For a Business?

To raise capital for business needs, companies primarily have two types of financing as an option: equity financing and debt financing. Most companies use a combination of debt and equity financing, but there are some distinct advantages to both.

Principal among them is that equity financing carries no repayment obligation and provides extra working capital that can be used to grow a business. Debt financing on the other hand does not require giving up a portion of ownership.

Companies usually have a choice as to whether to seek debt or equity financing. The choice often depends upon which source of funding is most easily accessible for the company, its cash flow, and how important maintaining control of the company is to its principal owners. The debt-to-equity-ratio shows how much of a company’s financing is proportionately provided by debt and equity.

Company ABC is looking to expand its business by building new factories and purchasing new equipment. It determines that it needs to raise $50 million in capital to fund its growth.

To obtain this capital, Company ABC decides it will do so through a combination of equity financing and debt financing. For the equity financing component, it sells a 15% equity stake in its business to a private investor in return for $20 million in capital. For the debt financing component, it obtains a business loan from a bank in the amount of $30 million, with an interest rate of 3%. The loan must be paid back in three years.

There could be many different combinations with the above example that would result in different outcomes. For example, if Company ABC decided to raise capital with just equity financing, the owners would have to give up more ownership, reducing their share of future profits and decision-making power.

Conversely, if they decided to use only debt financing, their monthly expenses would be higher, leaving less cash on hand to use for other purposes, as well as a larger debt burden that it would have to pay back with interest. Businesses must determine which option or combination is the best for them.

How Can I Buy a 10 Million Dollar Business?

Your best bet to get a $10 million business loan is with a large bank or lender that specializes in high-dollar financing for businesses. You also might be able to qualify for $10 million through the SBA 504 program — but this financing is limited to commercial real estate, not working capital.

Unfortunately, many alternative options won’t be able to fund your business at the $10 million mark. Smaller businesses are also cut out of the picture. If you don’t have the revenue to support such a large loan and a previous banking relationship with the lender you’re interested in, it will be difficult to find a $10 million business loan.

In most cases, you won’t be able to find a lender that offers such a large amount. Your options will be limited to large banks — so if you have plans for future expansion of this size, start planning now.

Opening an account with your preferred lender and borrowing smaller loans is a simple way to create a banking relationship, which may help your chances of being approved for a $10 million business loan in the future.

How Much Down Payment do You Need to Buy a Business?

Buying a business is less risky than starting a business from scratch. You know how the business has been performing for the last few years because you did your due diligence. While the current owner may be willing to carry the business — allow you to pay for it over time — she most likely will require a cash down payment to turn over the business to you. Even if you get a bank loan to buy the business outright, the bank won’t fund 100 percent of the purchase price, and you’ll still need a down payment.

Most lenders insist that business buyers/borrowers “have some skin in the game” such as a down payment on a business purchase. Most lenders require anywhere between 10%-30% down on a business purchase depending on the type of business, the deal structure, and the lenders general requirements.

How to get the down payment?

Refinancing Assets

If interest rates are low enough and the value of your home is high enough, refinancing your mortgage may generate enough cash for the down payment. You could also refinance a car or boat. Another option is a home equity loan. Be careful that you can handle the new loan payment amount, however. If you miss payments, you’ll lose your home and damage your credit rating. Your income from the new business may be lower than you expected until you get up to speed.

Hard-Money Loan

Hard-money loans are personal loans secured by real estate. The loans have higher interest rates, shorter repayment terms and lower loan-to-value ratios than mortgages. For example, a traditional mortgage might lend you 80 percent of the appraised value of your home for a 30-year period, while a hard-money lender will only lend you 50 to 60 percent for a one- or two-year period. Your credit and job history are not important for approval.

Using Business’s Assets

If the business has significant assets, such as a building or vehicles, it might be possible to refinance the assets concurrently with closing on the business. This would be done through an escrow company handling the refinancing and the sale of the business.

Selling some of the assets is another possibility. Again, use an escrow company to handle the transactions simultaneously. The amount of the down payment goes to the owner of the business. Any remaining funds go to you.

Credit Cards or Personal Loan

Credit card cash advances come with a hefty interest rate. Some cards will allow you to transfer balances to their card at a low or no interest rate for six months, freeing up credit on other cards. Taking out new credit cards is another option. A personal loan from your current bank or credit union is another option.

Personal Assets

Converting your own assets — such as stocks and bonds — to cash is a fast way to come up with a down payment to purchase a business. Tapping into your savings accounts is even quicker. Selling off assets such as an extra car, boat, jewelry or artwork takes more time, but is yet another way to generate cash for a down payment.

Partner/Investor

Find a partner or investor to provide the down payment while you provide the sweat equity in running the business. The partner or investor may be willing to remain silent — not be involved on a day-to-day basis — if the business meets certain profitability and performance measures.

How do I Purchase an Existing Business?

Do you want to be the buyer that ushers an existing business into a new era of success? Follow these steps to move forward.

1. Decide what you’re looking for.

Purchasing a business is a huge decision that will impact your life and livelihood for many years. So before you even start investigating options, start by knowing exactly what kind of business you’re looking for. Here are a few factors to consider:

• Location: Are you open to moving, or do you need something close to home? Or maybe you’re looking at businesses not tied to a specific location. Either way, remember that the location of your business will affect labor costs, taxes, and other financials that can change the business’s bottom line.
• Size: Do you want to own a small family business, or a large, bustling enterprise? Buying a larger business could mean bigger profits, but will likely also involve a higher purchase price and more stress in the transition. 
• Industry: What are the areas where you already have experience? What causes are you passionate about, or what hobbies are you interested in?
• Lifestyle: Are you interested in a job involving lots of travel? Are you open to working odd hours, or would you rather stick to a traditional nine-to-five? As the owner of a business, the buck stops with you — so think twice before choosing the kind of hands-on business that might involve emergency phone calls at 3 a.m.

2. Research available businesses.

Once you know what you’re looking for, you’ll need to start researching businesses up for sale. But wait! This isn’t the time to start Googling “businesses for sale.” Not yet, at least.

First put out some feelers close to home. Are your friends who launched a successful app ready to move on to their next project? Do you work for a small business you love whose owners may be willing to sell? Or if you’re keeping it small and local, maybe the owners of your favorite local coffee shop are ready to sell out and move to Bermuda?

If you know of a business you wish you owned, there’s no harm in asking.

From there, move outward to your business contacts, and carefully take to the internet for your research. BizBuySell is a reputable marketplace for buying businesses online. But be careful—for every legitimate opportunity to be found online, you’ll encounter dozens of bad deals waiting to happen.

3. Consider working with a business broker.

If you’ve done some research on your own and haven’t found the business you’re looking for, consider hiring a business broker to prescreen businesses for you, help you pinpoint your areas of interest, and negotiate the terms of your eventual business purchase.

Business brokers work similarly to real estate agents in that they will typically charge you a commission—around 5 to 10 percent of the purchase price—so they only get paid when you buy a business. So while the assistance of a broker can offer may be worth the cost, proceed with caution, and don’t let yourself get pushed into a hasty decision.

4. Complete your due diligence.

When you find a business that’s a good match, a true entrepreneur will be immediately itching to dive head-first into purchasing the business and moving it forward. Before you get too excited, slow down and do your homework. A business that looks great at first glance could have serious issues hiding underneath that would make it a poor choice for sale.

Before you go any further, get your acquisitions team assembled. Especially if you’re not working with a broker, you’ll need an acquisitions attorney and an independent business valuations firm to help you determine the value and health of the business.

Have a business valuation performed to determine how much the business is worth, and consider how the current owner’s connections and expertise may affect that value. In a business-to-business company, for example, a business sale could cause the former owner’s clients to leave, which would seriously impact the value of the business.

Have a professional accountant evaluate the business’s written financials very carefully to make sure everything is on the up and up, and question anything that may be unclear. When you buy a business, you take on a tremendous amount of liability for things that may have happened before you were involved, so don’t leave anything up to chance.

5. Acquire the necessary funding.

While there are many benefits to purchasing an existing business, it can certainly be an expensive option. Unless you’re independently wealthy or have a financial backer, you’ll likely need funding to make the sale.

Once you’ve settled on a purchase price for the business and know how much funding you need, you have a few options for sources of financing:

• Seller financing: This is where the seller allows you to make payments over time to purchase the business, usually for the purchase price plus interest. If your seller is open to this option, it can be the best financial choice for all involved.
• Angel investors or venture capital: In this model, you would be partnering with someone else to purchase the business — they are the financial investor, and you are the on-the-ground operator. If the business succeeds, this will cost you significantly in profits. But if it fails, you won’t have to worry about paying debts on a business that isn’t making money.
• Business loan: Alternatively, you could take out a term loan to purchase the business through a traditional bank or an online alternative lender. The good news here is that lenders are often more open to loans for purchasing existing businesses with a known revenue history. Even so, your personal financials will play a big role in your ability to qualify.

Each financing source comes with its own pros and cons, so do your research and talk to an independent financial advisor to make sure the funding source you pursue is the best choice for your bottom line.

6. Draft the sales agreement

You’ve chosen a business, negotiated the terms, and secured the funding to make a purchase. All that is left to do is draft the agreement and sign on the dotted line. Again, make sure you’re working with a reputable acquisitions attorney here, and that you fully understand the written terms of the agreement before you sign.

Don’t leave any ambiguities that could cause trouble at closing or even after the sale has gone through.

Choosing to buy an existing business is a valuable entrepreneurial feat that will impact your life, your community and the lives of your employees for years. With the right connection and a lot of hard work on the transition, you may be the perfect person to turn a good business model into great future for all involved.

What is The Most Cost Effective Way to Raise Money?

If you’re wondering how to raise money quickly, consider crowdfunding as your solution. If you’ve never raised funds online before, the process may seem overwhelming. But if you follow these five simple steps you’ll have everything you need to start a fundraiser for yourself, a loved one, or your favorite cause.

1. Define your goal

Start by determining how much money you need to raise. This is very important because it helps your potential donors understand how much money you need to raise for your specific cause. People are more likely to give money to a cause that is clearly defined, so calculate your goal based on your total cost breakdown.

For example, if you’re raising money for a medical procedure, don’t list just the big-ticket price of the procedure itself, but also related expenses such as lost income, rehab, medications, and medical devices.

2. Choose an online fundraising platform

When picking a platform for fundraising online you should look for:

• The lowest fees (both platform fees and payment processing fees)
• Ease of use and website design
• Customer support options
• Safe and quick access to your funds
• Fundraiser sharing capabilities

3. Tell your story honestly

We, as humans, are hardwired to respond to powerful stories. Personal fundraising stories help facilitate an emotional connection between the reader and the beneficiary, which can ultimately lead to more donations. This is why it’s important to be as honest as you can about your situation.

We understand that asking for help can be scary, but you don’t have to do it alone. To help, we came up with a few questions you can ask yourself when writing your story:

• What will the funds be used for?
• How are you connected to the cause?
• How will the donations raised aid you or help others?
• Why does the recipient need this donation?

Make sure you answer basic Who, What, Where, When, Why, How questions to increase the likelihood of donation. Remember, when it comes to fundraising, the why is particularly important.

Write a captivating title to match your story

Come up with a strong title after you’ve written your personal fundraising story. It will help you summarize your story in one standout phrase. Titles are really important because you’re giving the audience a glimpse into what your fundraiser is about. Make sure it reflects what your fundraiser is for in a clear way so that people click through and donate.

4. Share your fundraiser with your friends and family

Once you’ve posted your fundraiser, get feedback on it from trusted friends and family. Use any good suggestions to refine your story, images, etc. Then ask your inner circle for donations. Why? If potential donors see that some funds have already been raised, people are more likely to donate. Once your inner circle has donated, share your fundraiser with everyone everywhere.

Sharing on social media

A common question we see asked is “how to get my GoFundMe noticed?” The more visible your fundraiser is, the more donations you’ll receive. If you create a Facebook page for your fundraiser, consider paying to boost posts if the costs will be outweighed by donations.

Sharing without social media

While social media is a great way to connect potential donors with your fundraiser, there are other ways to share.

5. Show appreciation towards your donors

When a person makes a donation to your fundraiser, it’s because they believe in your cause. This is why thank-yous are so important–they serve as a way for donors to remain part of your story. Simple, personalized thank you letters are an easy way to show your appreciation and strengthen relationships with donors.

How Can I Raise Large Amounts of Money?

About six out of ten American households experience at least one financial emergency a year and about one-third of American families have no savings at all, according to FEMA. And almost 40% of Americans would have trouble paying for an unanticipated emergency expense such as a $400 car repair, according to a report from the U.S. Federal Reserve.

If you need quick cash to cover an urgent expense, where do you turn? Here are seven smart ways to raise money quickly without causing irreparable harm to your finances.

1. Liquidate Your Assets

Does the corner of your jewelry box hold your dad’s Rolex, your mom’s engagement ring, or a diamond pin you rarely wear? What about goodies tucked away in your closet—perhaps a fancy bridesmaid dress or your inherited great-aunt’s fur coat.

One online platform ready and willing to pay cash for your clothes is thredUp—in the Help Center click on “The Clean out Process” to find out how the selling process works. Or, you can try selling your clothing on eBay.

You also may be able to make fast cash by selling off recent-model electronics, like big-screen TVs, tablets, phones, laptops, and game consoles, as well as media like DVDs, CDs, books, and games, on sites such as Decluttr, Gazelle, and uSell, and marketplace sites like Swappa. Or you can try posting them on Facebook Marketplace, Craigslist, and Twitter; run an ad in your local newspaper; or peddle these pieces to friends and family members.

Depending on the quality of the garments, electronics, and media you’re willing to sell, you could quickly rake in hundreds—or more—in much-needed cash.

2. Take on Odd Jobs

If you don’t have any high-value items to unload, you can try selling your services instead—especially if you are out of work and have time on your hands. You might babysit and/or pet-sit for friends or start up a neighborhood dog-walking service.

According to ZipRecruiter, the nationwide average hourly wage for a babysitter is $28 an hour, while pet sitting pays an average of $14 per hour. Dog walkers can typically earn about $15 an hour, according to PayScale.

If you’re not up for dealing with dogs or kids, you might offer to mow the grass and wash cars for people in your neighborhood, or drive a neighbor’s elderly aunt to her doctors’ appointments. Or, if you enjoy driving, you might sign up to be a Lyft or Uber driver. According to Gridwise, rideshare drivers’ earnings in 2021 depend on where they live, but range from $14.65 per hour in San Antonio, Texas, to $19.44 in California’s Bay Area.

You could also grocery shop for busy friends or the elderly offer to repair and paint your sister’s dilapidated fence. Depending on how many jobs you take on and how much you charge for each task, you could scrape together a few hundred bucks within a single weekend.

If you don’t have enough people who need work done, try signing up for jobs through websites such as TaskRabbit, Thumbtack, or skills-based work in Upwork, Freelancer, or Fievrr.

3. Track Down Your Loose Change

At first glance, this advice may seem a little absurd—but it’s not a joke. According to a 2016 news report from Bloomberg, Americans throw away approximately $61.8 million of coins in the trash each year.7 That’s a lot of money stuffed in couch cushions, piggy banks, and old paint cans across the nation.

Hunt around the house to collect all those hidden coins. Once you dig up every last cent, haul the trove to your local bank or credit union. Some banks will count change for free for their customers, although others may require you to count and roll your change on your own.

Either way, once you convert those coins to cash, you could have another hundred bucks to put toward your emergency expense.

4. Organize a Garage Sale

One man’s trash is another man’s treasure, as the saying goes. While garage and yard sales require a lot of work, they can bring in a decent chunk of change for some sellers. Be sure to advertise on Craigslist, Facebook (if you have a local group), your local newspaper (online as well as print), and church bulletins, and put up neon signs with black lettering in key locations to bring in as many people as possible.

5. Get Money From Your Retirement Accounts

For more significant amounts of money, the first four steps may not suffice. That’s when it makes sense to look at your 401(k). In most years, if you’re younger than 59½, you pay a 10% penalty for withdrawing from your 401(k) funds, but there are times when it may pay to do this.

Also, there are certain exceptions when the 10% penalty may be waived, such as when you have unreimbursed medical expenses that exceed 7.5% of your modified adjusted gross income. You can also borrow, rather than withdraw, money from your 401(k), a better choice if you can manage it.

If you don’t have a 401(k) but you do have an IRA, this could also be a source of funds, especially if it’s a Roth IRA. With a traditional IRA, your options are more limited, but even then, there are some situations in which you can withdraw retirement money at little cost to you.

6. Part With Your Plasma

Now we’re getting to the more extreme options. Plasma is a valuable resource used for a variety of medical treatments and research. Donating plasma is similar to giving blood, according to Octapharma Plasma Inc., a company that collects plasma used to create life-saving medicines for patients worldwide.

Once your blood is drawn, it’s cycled through special equipment that separates plasma from the other parts of your blood. Your plasma is then collected in a container, while the other parts are safely returned to your body in a process called plasmapheresis.

Reports vary as to how much you can make, and it will depend on a variety of factors. You could make between $20 and $60 for each donation. According to the Octapharma Plasma website, “Generally, the more you weigh, the more plasma we can collect, and the longer it takes to donate it. The amount of money new and returning donors make reflects this.”

7. Borrow Money From Friends or Family

We saved this one for last because it really should be a last resort. While borrowing money from friends and relatives may be a quick fix, it can lead to some adverse consequences. When a loved one lends you some cash, it can put a strain on your relationship—especially if you don’t pay the person back quickly.

According to an article in Psychology Today, unpaid loans can lead to lingering bad feelings between the lender and borrower. If you plan on borrowing money, it’s probably best to draw up a contract stating when you will begin to pay back the lender and if you will also pay interest on the money borrowed.

What is Angel Equity?

An angel investor is a person who invests in a new or small business venture, providing capital for start-up or expansion. Angel investors are typically individuals who have spare cash available and are looking for a higher rate of return than would be given by more traditional investments. An angel investor typically looks for a return of around 25 to 60 percent.

Angel investment is a form of equity financing–the investor supplies funding in exchange for taking an equity position in the company. Equity financing is normally used by non-established businesses that do not have sufficient cash flow or collateral with which to secure business loans from financial institutions.

Angel investors fill in the gap between the small-scale financing provided by family and friends and venture capitalists. Attracting Angel Investors is not always easy, but there are things you can do. First, consider whether angel investing is truly right for you and your business.

How Can I Raise Money Fast?

1. Borrow from Friends or Family

This might seem like an obvious solution, but a lot of people are hesitant to admit that they’re in trouble.

It never hurts to ask friends or family members for help, though. You might be surprised at what they say. Sometimes, the people who seem the least inclined to loan you money are the ones who will come through for you.

If you do borrow from friends or family, be sure to set up a repayment plan that is fair to them and easy for you to stick to. Otherwise, upcoming events and gatherings are going to feel pretty awkward.

2. Pick Up a Side Hustle

There are lots of ways to take on part-time work these days. With so many companies like Lyft, Uber, and Task Rabbit out there, you can earn extra money on your own terms without having another boss breathing down your neck.

Look into one (or more) of these options to do during your spare time. You’d be surprised at how quickly the money can add up from a couple of hours of Uber driving or food delivery in the evenings.

3. Sell Future Labor

If you need money right away and don’t have a lot of time to work for it now, you could look into selling your future labor. For example, you could offer to exchange a certain number of hours of babysitting or yard care work in exchange for advance payment.

This could be a better option than borrowing money outright from friends or family members. They may be more inclined to agree if they feel like they’re getting something out of the deal.

4. Sell Your Belongings

If you have valuable items lying around the house, now might be a good time for you to look into selling or pawning them.

It’s not a great feeling to have to sell items that have value to you. Sometimes, though, it’s your only choice.

Look around your house and take inventory of what you have that you can sell.

Don’t just look for obvious big-ticket items. Remember, you can also get a lot of money from clothing, shoes, and books.

5. Donate Plasma

Donating plasma is similar to donating blood. However, the companies that collect the plasma cycle your blood through a special device to remove the plasma, then return the remaining parts of your blood to your body.

Most people earn between $15 and $40 every time they donate plasma (and you can donate two times per week in most cases). It usually doesn’t take very long, and you can kick back and relax during the donation process.

6. Cash in Some Investments

If you have stocks or bonds, you might want to consider cashing in on them. Cashing in investments can help you get your hands on some money in a hurry.

Keep in mind, though, that you may have to pay taxes on the money you receive, so it’s important not to spend it all. Talk to your broker to see which of your investments they recommend cashing in.

7. Apply for a Home Equity Loan

For people who own their homes, home equity loans are good options for getting them through tight financial situations. With a home equity loan, you borrow money against the equity you have in your house.

Home equity loans tend to have relatively low-interest rates, so they might be a better fit than other types of loans. The interest you pay on these loans is tax-deductible, too, and you often get to enjoy longer-than-average loan terms.

8. Borrow from Your 401(k)

If you have a 401(k) provided by your employer, a 401(k) loan might be worth considering. This kind of loan involves borrowing against the money you’ve saved in your 401(k).

There are limits to how much you can borrow, and you will have to pay the money back by a certain time in order to avoid tax penalties. However, this can still be a viable option, especially if you have a decent amount of money saved up in your account.

9. Take Out a Cash Advance

A lot of people have heard of a cash advance, but they don’t really know what it is or how it works.

In simple terms, a cash advance allows you to borrow money against your credit limit. If your credit card allows for cash advances, you can go to an ATM and take out a certain amount of cash using your credit card.

Cash advances will give you access to some quick cash. Remember, though, that they do have higher-than-average interest rates.

If you decide to take this approach, make sure you have a plan to pay back the money as soon as you can. Otherwise, you’ll end up with some steep payments as the interest increases.

How do You Build Capital?

1. Fund it yourself

It might not sound ideal, but dipping into your personal savings is probably the easiest way to raise capital for a startup. Of course, funding the business yourself carries some risk. However, the fact that you have enough confidence in your business to invest in it can make investors or lenders more likely to commit funding to it too.

2. Business loan

Small business loans are still a major stepping stone on the road to success for many entrepreneurs launching a new business. However, loan approval is not guaranteed. You will need to meet specific requirements, like having an excellent credit score and being in business for a certain period of time. 

3. Crowdfunding

Crowdfunding is the most recent capital raising strategy to make it onto the scene. Thanks to the internet, startups like Elevation Lab (makers of the iPhone dock) and Oculus (later acquired by Facebook) have become household names. Kickstarter, GoFundMe and Indiegogo are 3 of the best-known crowdfunding sites.  

4. Angel investment

Angel investors are wealthy, accredited individuals that usually fund businesses alone but sometimes join other angel investors to do so. Ever seen the show, Shark Tank? This is what presenting to an angel investor can be like – so make sure you have a solid business plan and pitch ready, with all the key financial information at your fingertips.  

5. Personal contacts

You might not feel comfortable asking friends and family members for money but according to Fundable, 38% of startup founders report raising money through their loved ones. Not only that, but friends and family reportedly invest the most – more than $60 billion per year. However, mixing family and business may add more stress to the capital raising process than necessary. 

6. Venture capitalist

Venture capitalists tend to invest in more mature companies than angel investors, and operate out of a firm, rather than working alone. Compared with angel investors, venture capital firms invest in a lower ratio of businesses that apply for funding – but when they do, they generally invest more money. 

Why do Companies Prefer to Raise Money Through Debt Not Through Equity?

The simple answer is that it depends. The equity versus debt decision relies on a large number of factors such as the current economic climate, the business’ existing capital structure, and the business’ life cycle stage, to name a few.

The Cost of Equity is generally higher than the Cost of Debt since equity investors take on more risk when purchasing a company’s stock as opposed to a company’s bond. Therefore, an equity investor will demand higher returns (an Equity Risk Premium) than the equivalent bond investor to compensate him/her for the additional risk that he/she is taking on when purchasing stock.

Investing in stocks is riskier than investing in bonds because of a number of factors, for example:

• The stock market has a higher volatility of returns than the bond market
• Stockholders have a lower claim on company assets in case of company default
• Capital gains are not a guarantee
• Dividends are discretionary (i.e., a company has no legal obligation to issue dividends)

Thus, financing purely with equity will lead to a high WACC.

While the Cost of Debt is usually lower than the cost of equity (for the reasons mentioned above), taking on too much debt will cause the cost of debt to rise above the cost of equity. This is because the biggest factor influencing the cost of debt is the loan interest rate (in the case of issuing bonds, the bond coupon rate).

As a business takes on more and more debt, its probability of defaulting on its debt increases. This is because more debt equals higher interest payments. If a business experiences a slow sales period and cannot generate sufficient cash to pay its bondholders, it may go into default.

Therefore, debt investors will demand a higher return from companies with a lot of debt, in order to compensate them for the additional risk they are taking on. This higher required return manifests itself in the form of a higher interest rate.

Thus, financing purely with debt will lead to a higher cost of debt, and, in turn, a higher WACC.

It is also worth noting that as the probability of default increases, stockholders’ returns are also at risk, as bad press about potential defaulting may place downward pressure on the company’s stock price. Thus, taking on too much debt will also increase the cost of equity as the equity risk premium will increase to compensate stockholders for the added risk.

What Are The Basic Sources of Funds For All Businesses?

Companies always seek sources of funding to grow the business. Funding, also called financing, represents an act of contributing resources to finance a program, project, or a need. Funding can be initiated for either short-term or long-term purposes. The different sources of funding include:

• Retained earnings
• Debt capital
• Equity capital

Retained Earnings

Businesses aim to maximize profits by selling a product or rendering service for a price higher than what it costs them to produce the goods. It is the most primitive source of funding for any company.

After generating profits, a company decides what to do with the earned capital and how to allocate it efficiently. The retained earnings can be distributed to shareholders as dividends, or the company can reduce the number of shares outstanding by initiating a stock repurchase campaign.

Alternatively, the company can invest the money into a new project, say, building a new factory, or partnering with other companies to create a joint venture.

Debt Capital

Companies obtain debt financing privately through bank loans. They can also source new funds by issuing debt to the public.

In debt financing, the issuer (borrower) issues debt securities, such as corporate bonds or promissory notes. Debt issues also include debentures, leases, and mortgages.

Companies that initiate debt issues are borrowers because they exchange securities for cash needed to perform certain activities. The companies will be then repaying the debt (principal and interest) according to the specified debt repayment schedule and contracts underlying the issued debt securities.

The drawback of borrowing money through debt is that borrowers need to make interest payments, as well as principal repayments, on time. Failure to do so may lead the borrower to default or bankruptcy.

Equity Capital

Companies can raise funds from the public in exchange for a proportionate ownership stake in the company in the form of shares issued to investors who become shareholders after purchasing the shares.

Alternatively, private equity financing can be an option, provided there are entities or individuals in the company’s or directors’ network ready to invest in a project or wherever the money is needed for.

Compared to debt capital funding, equity funding does not require making interest payments to a borrower.

However, one disadvantage of equity capital funding is sharing profits among all shareholders in the long term. More importantly, shareholders dilute a company’s ownership control as long as it sells more shares.

Why do Companies Increase Equity Instead of Debt?

When CEOs of early-stage companies think about growth capital, they rarely think of debt financing. Venture capital has a larger mindshare, and a lot of founders are anxious about taking money that has an interest rate or repayment cap attached.

They shouldn’t be. Financing your healthy growing company with debt isn’t the same thing as maxing out your credit cards to fund your product development. You have paying customers, maybe even a few enterprises. You have revenue. You (hopefully) have an accounting function. This infrastructure makes debt easy to account for: you know your repayment obligations ahead of time and you can plan for them.

In addition, debt financing may offer its own hidden benefits. Here are five reasons not to be skittish about financing your company with debt.

1. In the long run, debt is cheaper than equity

Entrepreneurs tend to think of VC as free money. It’s not. In fact, if you plan to scale and exit, debt is almost always the cheaper option.

Think of it this way. If you take a five-year loan of $1M at 20% APR, that $1M has cost you $1.6M by the time you pay it off. But if you take $1M from a VC at a $5M valuation (meaning you sell 20% of your equity), then get acquired for $15M, those VCs get $3M.

The same amount of capital at the same time, but the lender sells you $1M for $1.6M, and the VC sells you $1M for $3M.

2. Debt gives you tax benefits

Assuming your company is out of the red, debt financing provides a few tax perks that equity financing cannot.

If your business uses accrual accounting, the interest portion of your payment runs through your profit and loss statement, which reduces your taxable net income. This means the effective cost of the borrowing is less than the stated rate of interest. Essentially, the US government helps mitigate the cost of your loan.

3. A lender isn’t going to tell you how to run your business

Taking on equity investors means giving them seats on your board. It also means conforming to their expectations of how your company should grow. If you don’t like it, be careful—they can limit your control over the business you started, or, in the worst-case scenario, oust you from your own company.

Lenders don’t worry as long as you’re hitting your payments and staying in a position to continue doing so. No board seats, no control.

4. For businesses with sticky revenue streams, debt can be very accretive

Jason Lemkin points out that if you’re an early-stage company with recurring revenue streams (like SaaS or subscription-based services), a minor amount of debt will actually increase your net cash flows. The extra cash will let you make a few key hires. If you hire well, those folks will build out features and sales programs and you can see an ROI much higher than the cost of their salaries.

5. More time to actually run your company

Raising a VC round usually takes between six and nine months of coffee meetings, pitches, and phone calls. Raising debt financing is generally much faster. Lighter Capital, where I work, often funds companies in one month.

Read Also: Importance and Advantages of Having a Business Card

Debt saves you time once you get it, too. Lenders don’t need to keep up with your every decision, and they don’t require board meetings. They won’t need to deliberate with you over every new hire or strategy.

Can I Buy a Business With 5% Down?

Many (most actually) SBA lenders require a down payment of at least 10%, but it is not an SBA 7a loan requirement and there are excellent lenders offering very good terms who do not require a cash injection despite what you might have read or heard.

How much you need to put down depends on the use of the loan proceeds. Below is a listing of down payment by property or transaction type:

100% Financing: No down payment is necessary for the following situations:

1. Purchase of a building where your business will occupy 51% or more of the square footage
2. Ground-up construction of a building where your business will initially occupy 60% or more of the square footage
3. Purchase of another business of the same type (Examples: a law firm buying another firm, a retailer or service business buying a competitor, etc.)
4. Expansion of an existing business or franchise by purchasing another location (Examples: acquisition of another Allstate or State Farm Insurance Agency or building, a Maaco franchise, a quick service restaurant franchise, another Goddard School, etc.)

Most lenders that offer a (7a) commercial loan with no down payment generally like to finance more generic buildings but there are those that will consider some specialty properties like preschools, auto repair, assisted living, etc., so it is always worth having a discussion with a lender to find what is possible.