Can't Get a Business Loan - 5 Ways to Seek Private Investment

Banks are not lending to small businesses or start ups. Non-bank private lenders are hard to find and, like the banks, have raised their criteria to the point that even well qualified borrowers are being turned down.

The government, while attempting to help small businesses, is still falling a bit short.

So, where can business owners turn? There are still exceptional companies looking for expansion capital - either because they are still growing during these times or are using this market lull to better positioning their firms for when the economy finally recovers. Additionally, with many well qualified and talented people out of work - many are turning to entrepreneurship as a way to better secure their financial future.

All of that said, where can these businesses or budding entrepreneurs find the capital they need - be it working capital, inventory purchases, or opportunity financing? Simple Fact: It takes money to make money!

Many are turning to private investors. And, while many of these investors are not activity seeking new investment opportunities, some still have capital to invest if the right deal presents itself.

The following are five steps that businesses or entrepreneurs can take to help better position their companies in finding and obtaining the capital they need.

1) Investors invest in people - not ideas or products - but people. There is an old saying: 'you can have the greatest idea in the world, but if you cannot execute that idea - it is just an idea!' Therefore, you must have your management team in place or as much of it as you can. Your team must have the skills and experience to execute your idea - this can come from education or experience in running a successful business in your industry.

2) When it comes to your product or service - it is not the product that really matters but the size of the market - make sure it is big. Investors are not looking to invest in million dollar markets but billion dollar markets. Investors, for the most part, are in it to make money. If they decide to invest in you - they are giving up other opportunities (some are guaranteed) - called opportunity costs. Thus, if they intend to take additional risks with your business, they expect high return potentials.

3) Track Record. Investors like to see results. They want to see that you have taken your idea or business as far as you can without their help. A track record could be in the form of current revenue or customers or from contracts in hand. You must demonstrate that your business is viable and that businesses/consumers want and need your products.

4) Pitch. Have a well thought out and practiced pitch. These investors are busy and as such have short attention spans. Further, with few debt (loan) options, more businesses are pursuing these investors. With increased competition, your business must stand out. You must be able to covey your investment potential in a very short and concise manner that grabs attention and compels additional consideration.

5) When searching for investors - don't go at them directly - find their gatekeepers. Most investors trust and respect the people they work with and know. Seek out CPAs, attorneys, successful business owners, etc. Converse with these people about your company or your deal. Let them approach the subject of investment and let them tell you they know of someone who may be willing to invest. Therefore, you get an introduction to the investor from someone they respect. Note: You can even approach the management of the portfolio companies that the investor has already invested in. The goal is to get an introduction.

Just remember, many businesses are turning to this source of capital for business growth. It is very competitive. Further, many investors have very narrowly defined industries in which they invest or, in regards to angels and angel groups, usually invest in industries they have experience in.

Lastly, investors come in all shapes and forms. While most business owners seek out traditional venture capital groups or accredited angel investors, there may be many qualified private investors right under your nose. Don't be afraid to approach local doctors, lawyers, professional, and/or business owners in your community. Many have disposable funds that can be used for investment and some do pool their money to fund local companies that provide needed services in their community. It is their way of giving back.

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