Q: What is the process for getting funding from a business angel, and how does it differ from getting finance from other sources?
Mar 18 2009
Answered by: Clive Lewis Ask a question
Basically, there are two types of finance – debt and equity. Debt finance is the more common and, in normal circumstances, easier to access. A business with an urgent need for finance should talk to its bank.
There are a range of debt finance options. The main ones are:
• Bank overdrafts
• Bank loans
• Hire purchase and leasing
• Factoring and invoice discounting
• Asset finance
• Credit cards
• Schemes such as The Prince’s Trust’s Business Programme
However, businesses which are serious about growing might find their growth ambitions restricted by relying on debt finance, particularly in the current credit crunch environment. An alternative is to start the process of making themselves investment-ready for outside equity investment. Many owners of SMEs find the idea of outside investment completely unacceptable. They associate outside equity investment with loss of control or being required to do things in their business that do not result in increased sales or profits or are a waste of time.
TV programmes such as Dragons’ Den are beginning to get across that there is another side to the story. A business receiving investment of outside equity can also benefit from the expertise of an independent director (often the outside investor) and a greater external perspective on the business. A good place to start is looking for small-scale equity investment.
A presentation to a meeting of angels can last 20 to 30 minutes and there will be lots of questions following it. Like when pitching for debt finance, you will also need to produce a detailed business plan.
Business angels tend to make the final judgement on personal factors, such as whether they think they can work with the management team or not.
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