FINANCING YOUR BUSINESS
THROUGH PRIVATE INVESTORS AND LENDERS


(Excerpts) by Louis Ritter

When you're looking for financing for a business opportunity, remember that many of your friends, relatives and acquaintances will often enthusiastically wish to back your enterprise. In finance circles, the group of investors that encompass relatives, associates, suppliers, and past customers are known as "Affiliated Angels". Historically, the term "Angel" comes from investors who have backed Broadway productions, but in recent years it has gained a much broader meaning. The Ford Motor Company was started in 1903 by five Angels who invested a total of $40,000 in the hopes of developing an automobile company. Sixteen years later their investment earned them $145 million...

WHO WOULDN'T WANT TO OWN A SHARE IN A MC DONALD'S?

There is no need to be self-conscious about asking for investment capital from friends and relatives when the business concept has a proven track record and you're offering a better return on investment than most savings accounts, CD's, money markets, stocks, etc. Remember, banks are currently paying extremely low rates of interest. Many of the country's leading investment analysts are warning investors that now is not the time to put their money in the stock market -- it's too volatile...

KEEPING FRIENDS: PROFESSIONAL AGREEMENTS

...When family and friends are involved, it is extremely important to present yourself professionally.

If you decide to take an active or silent partner, or even if you accept a collateralized loan from a friend, you should always have a professionally prepared agreement stating the terms of your business relationship, along with an agreed-upon formula for you to buy out the interest of your partner within a time period of your choosing. Be aware that the cost of creating these agreements with the help of your attorney can be considerable... Depending on the success of your business, many of these individuals will come to you asking to increase their share of the partnership. The decision is yours. Once again, most people do not have the fortitude and drive to become their own boss, but they would like to be associated with someone who does.

Often the investment Angel that you come in contact with every day would like nothing better than to make a small investment with you in a business, in the form of either a loan or purchasing equity in your business as a silent partner. These individuals usually do not want to be involved in the management of your business; they invest for the simple pleasure of seeing you succeed, and to share in the excitement of watching a new business grow. Angel investors are often bored with their current occupations and want to back a business opportunity because it gives them a sense of belonging to something new and vital......

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