FUNDING SOURCE

Funding Source - There are numerous types of funding sources available to private and public companies. Small start-up and development companies that may start out as self-funded sometimes look to family and friends for funding small amounts. Although it may be easier to raise money from family and friends because they know you and may be familiar with your business, it is risky because you can jeopardize the relationship you have with them if the business fails.

Investment bankers or boutique brokerage firms usually have affiliations with many investors that may include a hedge fund funding source, finance companies, private investors and institutional investors. Most investors look for seasoned middle management teams that are looking to buyout or acquire a company they currently work for, that is interested in being sold.

Family and Friends Funding - Entrepreneurs should be especially careful of raising money from family and friends if the venture is a complete start-up with no track record and no revenues. Is the relationship you have with family and friends worth risking on a start-up, most of which fail in their first year of operations? If you have an existing business and need a small short term loan for a piece of equipment or moving expenses for a new location, depending on the situation, there may be less of a risk that you will be unable to pay the loan back to your family and friends.

At least an existing business will have a track record of revenue that you may be able to estimate how long it will take pay back the loan, barring unforeseen circumstances. Banks and Finance Companies normally finance equipment, however, so you probably can get financing from them with a little bit of searching, so try that first.

Another transaction that poses less risk than a pure start-up venture is to buy an existing business. Approaching family and friends as a funding source for a loan to purchase an existing business, is also a much easier sell. At least the business will have some cashflow. Preferably it should be a profitable business that will be able to payoff the loan over a period of years with a good rate of return to your lenders/investors, unless of course the business falters after you take it over.

One of the worst things to do is to start off a new business, or any business for that matter, under-capitalized. Make sure you have carefully calculated every penny needed to run that business. Talk to your accountant or other financial advisor and have that person work with you to make sure you have adequate funding and know all the costs and expenses involved in running that business, and then add another 20% or more for unanticipated costs and expenses that are sure to pop-up.

Other good funding sources include Angel Investors, Broker-Dealers for Private Placements, Venture Capital and Bridge Loan investors.

Standby Equity Purchase Agreement
Many companies have received substantial amounts of funding through a Standby Equity Purchase Agreement funding which is usually entered into with a hedge fund.