Are you looking to finance your first investment project? A good idea is not enough to get your project off the ground. To turn your idea into a successful venture, you also need technological and financial resources.
Seeking financial support to get your investment project off the ground can be quite difficult. However, looking in the right places can save you a lot of time and money.
Most projects start modestly with small start-up capital. However, with time, most entrepreneurs look for ways to expand the businesses by financing investment projects. Read on below to understand everything about financing investment projects.
How to Finance Investment Projects
Finding investment project funding in any economic climate can be difficult. This is true for both start-up and expansion investment projects. Use the below techniques to help you find funding for your project:
Think About Factoring
If you run a company, factoring could help you raise funds for your investment project. Factoring involves selling your company’s receivables at a discounted price to get up-front cash. This method is used by entities with poor credit scores or apparel manufacturers that offer products on credit.
However, factoring is an expensive way to raise investment project capital. The company selling receivables is charged a percentage of the total amount. If you’re asked to pay a 3% fee to get the money 30 days in advance, this translates to a 36% interest rate per year.
Thanks to these high-interest rates, factoring has gotten a bad reputation in the market. However, companies still consider this as an alternative to raise money to finance some of their projects.
Other companies in the market are trying to make the factoring method more effective and competitive. Such companies create platforms where you can offer your receivables to numerous factoring businesses at once, including financial entities, hedge funds, and banks. The lenders are then allowed to bid on the receivables invoices.
Get a Loan
Banks’ lending criteria continue to grow strict every day. Fortunately, some banks have launched programs assigning additional funds to help small businesses or start-ups. Try it out, and you could qualify for a loan.
Alternatively, you can turn to a hard money lender for a quick loan to fund your project. If you’re looking to start a real estate project, a hard money lender is a good option. That’s because they have quick closing, in-house, underwritten, and funded loans, and offer flexible lending solutions.
Take a Small Business Administration (SBA) Loan
Thanks to the credit crisis in the U.S, banks are reluctant to risk their money by offering loans. Thus, SBA-guaranteed loans have become very popular among business owners. While it’s easy to access SBA-guaranteed loans, there are a few qualifications, which include:
- Your business has to be turned down for a loan from financial institutions and banks
- Your business must meet the government’s definition of small businesses in your specific industry
- You should meet all the criteria and qualifications for the type of loan you want
After confirming that your business meets all these qualifications, look for independent financial companies that offer SBA-backed loans and apply for the loan. SBA doesn’t give out loans directly to small businesses.
Look for an Angel Investor
When looking for an angel investor, remember the rules; be concise, avoid industry-specific jargon, and create an exit strategy. Unfortunately, the tough economic state of the past year has made this complex process even worse.
Below are tips to help you win over angel investors for an investment project funding:
Include Experienced People in Your Team
When investors see an experienced person on your team, their fears about your ability to deal with tough economic times vanish. Even an experienced but unpaid financial advisor could have real value on your credibility.
Why do you want to launch your project? Are you after money, or do you have passion for your project? Potential investors can easily spot the difference.
Most investors are looking to finance investment projects with passionate founders. They tend to steer clear of get-rich-quick projects.
Understand Your Project
To impress an angel investor, you will require competitive analysis, market assessment, and a well-thought-out sales and marketing strategy for your project. Even start-ups need to assess the market they’re about to join and be disciplined enough to follow through with their plan.
Always Keep in Touch
If this is your first investment project, the angel investor may not be interested in working with you, especially if you don’t have a history as a successful business owner. Keeping in touch will create a relationship with the potential investor and keep tabs on your project’s new developments. This might help them revisit their decision later.
Pledge on Your Future Earnings
Are you young, ambitious, motivated, and willing to bet on your future profits or earnings? Start-up business owners offer a percentage of their future earnings in exchange for upfront venture funding. However, remember that the enforceability and legality of such personal funding contracts have not been established yet.
Tap Into Your 401(K)
Are you unemployed and thinking of starting your own business? You can tap into the funds accrued into your 401 (K) without penalty, thanks to the provisions in the tax code. However, there are steps to follow to ensure you’re not penalized.
While these steps are quite simple, they are also legally complicated. Thus you will need an expert to help you set up a C- Corporation and a suitable plan for your retirement assets.
Keep in mind that your 401K is also your retirement nest egg. Thus if things go south, you will lose both your retirement fund and your investment.
Raise the Money From Your Family and Close Friends
This is one of the most common ways of financing an investment project. However, remember that borrowing from people close to you may risk their financial future. It’s also the easiest way to jeopardize your relationship.
Don’t make the mistake of asking friends and family for money before drafting a business plan. Treat them as potential investors and give them an evidence-based valuation of when you will pay their money back. This will help you reduce the probability of unpleasant surprises.
Think thoroughly about how to structure the arrangement. Is the money a loan, or will you offer them equity?
Remember to emphasize the risks involved in funding your investment project. This will save you awkward thanksgiving conversations.
Use a Credit Card
Funding an investment project using a credit card can be quite risky. One risk involves falling behind on your credit card payment which may lead to a poor credit score. However, when credit cards are used responsibly, they could be the answer to getting your project off the ground.
According to statistics, over 50% of small businesses today were financed by credit cards. While credit cards offer individuals easy access to money, most business owners are concerned about credit card debts’ high-interest rates.
The Basic Steps to Financing Investment Projects
Before getting your financial investment capital and launching your project, there are other steps you should consider. Below basic steps will help you build a solid foundation for your investment project:
Mitigate the Risks of the Investment Plan
Despite thorough planning and noble intentions, unpredictable circumstances could lead to disruptions of the project. Some of these risks may include unexpected instability, theft, or the local currency’s deflation in your country of operation. Therefore, you should take steps to help mitigate such risks.
Identify Sources for the Necessary Technological Infrastructure for the Business
Evaluate your project idea and identify the practical skills and technical equipment necessary to run your business. Once you know what you need to get started, identify a source of these things and look for individuals with the right skills to run the project.
Determine the Practicability of Your Investment Project
Before looking for funding, evaluate your project to determine its feasibility. This includes drafting a detailed analysis of:
- The cost of all components of running your business, including technology, workforce, and human resources
- Competition in your industry, both international and domestic
- Your project’s competitive advantage and unique selling point
- The expected revenue to be generated by the project and the ROI
- An analysis of the market including barriers, risks, and industry trends
Determining the feasibility of your project will help you plan for everything in advance. It also shows potential investors that you are serious and passionate about the project. This might be instrumental in swaying their decision in your favor.
Now You Know How to Finance Your Investment Project
Having a lower credit score doesn’t mean you can’t secure a loan to fund your project. Most entrepreneurs have used other methods to finance their investment projects. Depending on your needs, you may use any of the above-listed financing methods to get your project off the ground.
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