Small business investors
There are several categories of small business investors, including small-scale venture capitalists, “angels,” banks, factors, and “irrational investors.”
Angels is an individual capital investor who wants to support small businesses, and often enjoy being involved in advising the businesses they invest in. Angels tend to back businesses in fields they understand well, and generally do not demand controlling interest in the companies they back. They tend to dole out money in relatively small amounts, but on favourable terms. They are generally driven by the soundness of your business concept, and will want to see a thorough understanding on your part of how the day-to-day operations of your business will lead to positive cash flow. They tend to expect positive returns on investments from your business becoming profitable in the near term.
Factors are <a rel=”nofollow” onclick=”javascript:pageTracker._trackPageview(‘/outgoing/article_exit_link’);” href= http://www.launchfn.com/id150.html >small business investors</a> that buy your receivables, usually at a steep discount. If you have the prospective to expand, not enough cash, but outstanding receivables from reliable payers, you might be able to find a factor who will give you a percentage of those receivables in cash right away, in exchange for 100% of the receivables when paid. Factoring is a risk-driven
business, and depending of the overall conditions of industry, and the relative risks in collecting from the people who owe your business money, factors will discount the value of your receivables by as much as 50% to 70%. Keep in mind that these numbers vary quite dramatically, and can be as low as 20%.
“Irrational Investors” is the kind of <a rel=”nofollow” onclick=”javascript:pageTracker._trackPageview(‘/outgoing/article_exit_link’);” href= http://www.launchfn.com/>capital investor</a> every small business person can appreciate. These are people who believe in your business, or in you, to the point that they will give you money on tremendously favourable terms. Small businesses you might realize are funded by irrational investors, whether they are relatives, mentors, employees, or fellow members of the church choir. In fairness, even though irrational investors will often not bother to ask for any guarantee, you need to document all agreements with these investors, and arrange for fair equity or reasonable repayment terms in exchange for their money. If fairness isn’t enough of a reason in itself, in the event of an audit, you can count on the fact that the IRS will want to see appropriate paperwork and realistic terms on all of your loans and capital investments.
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