The Pot of Gold is not always at the end of the Rainbow
In the previous article methods for achieving financing for your small business from banks and other institutional sources were discussed. While this is the most common form of financing, there are other methods and sources which are equally viable and accessible for small business owner. While bank loans still provide the most commonly used forum for raising capital, especially for larger amounts and longer term financing ( a recent survey by the Canadian Bankers Association showed that 87% of small and medium size businesses have their loans approved by the seven largest banks), options like line of credit, "angel investors", business development banking (government option), and financial consultants, can be equally viable and successful allies in the search for capital for your business.
A line of credit, which functions much like a credit card (as the name would imply), can be secured from a bank but without the long and tedious process which is involved in loan applications. In granting a line of credit, most banks look at your company's and personal financial and credit history. However, banks are not the only sources for securing credit-type financing. Equipment leasing is another way to free up much needed capital. Monthly payments, rather than large one-time investments, can ease the burden of securing expensive, though necessary, equipment and there may even be other benefits beyond the issue of cash, such as tax benefits, involved in leasing.
Usually consisting of some sort of equity financing, an "angel" investor is, generally, a friend, family member, or business acquaintance who either (or both) the cash or the business expertise to assist you in your venture. Since one of the fringes of such an arraignment may involve a transfer of stock or partial ownership in your company, it is important to secure the services of a lawyer or accountant to draw up an agreement which outline parameters of the deal between you and your "angel". Apart from capital and potential expertise is necessary areas, an equity investor can provide other benefits. A company with equity investments looks more secure, making it a more attractive partner for banks and other financial institutions from which loans or credit extensions may be required.
Some projects may also be able to secure government-backed loans through the federal Small Business Loans Act. This act is designed to support loans through financial institutions to businesses which gross under $5 million annually.
Using a financial consultant is another option when considering how to raise capital. Financial consultants are independent agents with knowledge of investments sources. Their task would be to circulate your financing requirements, selling potential investors on the merits of your business. Most consultants require some sort of fee for their services prior to securing a deal. This is a necessary price to pay as it ensures that the consultant has vested interest in your company. Such an agreement is two-fold: it helps the consultant defray costs and also gives the consultant the commitment from you that is essential to secure a deal. However, the same rules apply to financial consultant as do prospective consultant and make sure that they have proven to be successful in securing financing for previous clients.