Most small business owners do not start off with large amount of disposable income on hand so it is common to need up front money. Many companies used small business loans or investors as a way of getting their business ready. Investors are used because the original investment pays the operating costs and early costs that you might encounter before the business opens. The marketing costs alone in order to get more customers can be paralyzing. Some are lucky enough to have rich parents that invested money in their company, but not everyone has rich family members. Business coaching experts warn against using family and friends as investors because you do not know if you will be able to pay back that money, or even how fast you might pay it back.
Finding an investor begins by deciding on the type of investor you want. Some investors act as partners in your company and get stocks or shares of the company, in exchange for the investment. This idea occurs less often in small businesses because you do not have shares. Another investor gives you a specific amount of money and gains control over a specific aspect of that business. For example, an investor might give you money, provided that he has control over the research and development of new products.
Investors also take the form of silent partner, which many in the small business field prefer. The investor gives you the money that you need, but gains partial ownership of the company. The investor acts as a lender and retains partial ownership until you pay back the total loan amount. Depending on the agreement and contract that you form, you might pay back interest on the amount, just as you would a loan. As a silent partner, the individual has no control over any business decisions and cannot do anything to the business without your permission.
Regardless of which investment type you choose, is it important to create a contract. The contract outlines the exact agreement and your relationship. If you use multiple investors, then you must create a separate contract for each one. Investors typically expect some return on their investment and the terms of that return should appear in your contract. For example, if you agree to give the investor 15 percent return within five years, then that amount must appear in the contact. A notary should oversee the signing of the document, which makes it official. Most banks have a notary on staff specifically for contract negotiations and signings.
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