Small businesses and startups that are looking for financial assistance may be able to use alternative forms of aid that will help generate capital for their business to not only get established but potentially have a high growth rate and, obviously, become more profitable in the future. In terms of these alternative sources of capital, venture capitalists and angel investors can offer financing for new businesses and guidance that can help these companies grow and become more successful due to not only the nature of this form of financing but the guidance that can come from a particular investor or venture capital company.
Programs have been implemented as a way to offer more assistance to small businesses and startups, particularly through the SBA’s Loan Advantage Program, but reports have also stated that many major financial institutions are planning to continue lending to small businesses in 2011, despite the fact that some business owners complained of constrained lending practices in 2010. There were major financial institutions that did continue to offer small business loans last year, but many companies, particularly new businesses, found that qualifying for these funds was difficult, if not impossible, in some cases.
While loans are one of the more common methods that business owners have used as a way to find the capital to begin their business, companies may be able to find aid from venture capitalist firms or angel investors, depending on a variety of factors. According to the SBA, companies who are interested in accessing venture capital funds will have to submit a business plan, which is not uncommon when seeking a loan, but these companies may also be able to benefit from an angel investor or a venture capitalist opportunity if they can convince these investors they are worth the risk.
Investments from outside sources will usually be more helpful, in terms of allowing a business to avoid the debt that is associated with a loan, but there will be incentives for these investors, usually in the form of stock or other compensation if a business profits and becomes more successful. Usually, these types of investors have not only knowledge but experience in the business world and can help new companies better formulate their strategy and execute their business goals in such a way that may offer a better chance for these companies to become profitable in the future. Private investors are, obviously, heavily interested in a business’s success due to the fact that they will receive profits in relation to the success of this company, but with advice from these investors to help new businesses, this could give certain companies an edge when it comes to furthering their business.
While angel investors or venture capital firms may not be an option for all companies, and they will usually expect a high rate of return from their investment which will obviously lead to these individuals to be involved in many of the businesses operations, they can be an alternative source to small business loans and, coupled with the fact that these investors may be quite knowledgeable about how to get a business off the ground and running, and will not lead to debt on the part of a business owner which, again, comes from loans, they can be a helpful resource for companies who are in need of the financing to begin their business but may wish to avoid a traditional small business loan.