5 things you MUST avoid when you're seeking capital from an investor or bank

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5 things you MUST avoid when you're seeking capital from an investor or bank

When it comes to a successful business, it's not just a great idea or product that pushes you into the stratosphere when it comes to making money.  Usually you will need to have an investor come in and help you out monetarily which will help you push your business even more.  I'm not going to lie, getting investor capital is never an easy thing and you'll likely have to bootstrap your profits in order to build you own capital in order to be successful, but it's not impossible 5 things you MUST avoid when you

Don't get me wrong, bootstrapping a business is a great way to build your business because you're doing it all yourself and you don't have to sign over part of your company for a certain amount of time, or forever depending on the contract.  With an investor coming in early, you won't have to worry too much about cash flow at the start and you can just work on what you already know and love to make it the best it can be 5 things you MUST avoid when you

1. Know how much money you need
So many business owners will think they need hundreds of thousands of dollars in order to be successful when it comes to owning their own business.  You'd be amazed at how much just $10,000 can boost a company to the top and become the authority within the niche and help it make an extra $1,000 a day lol 5 things you MUST avoid when you  There have been plenty of success stories that started with a $1,000 to $10,000 investment and the company now makes millions. 

Most startups will fail at obtaining capital from an investor because they simply think they need too much.  The investor will give you what they think you will need in order to be successful, and not a penny more, because they've likely worked within your niche and know what it takes.

Don't seek too much capital because you could be turning away investors that want to work with you.

2. Don't give up too much equity in the early stages
Almost all the investors you will talk to when seeking capital will want a decent amount of your equity in return for some startup money.  This is because they want to be successful along side of you and they think your business has a fighting chance to be big. 

If you're getting a $10,000 investment and giving away 49% of your equity, you don't have any wiggle room if you want to bring in another investor.  If you do bring in another investor, they will see that the first one got 49% for $10,000 and they're only getting 1% for the same amount lol.  Now you could give them more than 1% but you will be giving away the controlling shares to the first investor, which basically means you don't run the company anymore.

Start low and offer something like 5% because that's what a lot of investors are use to.  They will see your potential and know that the 5% and $10,000 investment could be a really good idea because you could be making millions later on.  Of course you can bring in other investors, or work with the original one later on, if you want more capital... But it will cost them much more money to get another 5% 5 things you MUST avoid when you

3. Don't have any credit card debt
Most startups will use their own credit cards in order to get their businesses off the ground.  I would try to avoid doing this, and if you do you should pay it all off before you try working with an investor. 

No investor will want to see that you have credit card debt and also trying to seek capital.  They will see this as you using their money to payoff your debt and after that you have less money to push into the business.  Now if you use your own profits to pay off your debt in a short amount of time and show the investor what you did, because you're responsible, they will be more likely to open their check books 5 things you MUST avoid when you

4. Avoid companies requiring you to pre-pay them for an investment
So many times I've heard of this problem, and it's still going on today somehow.  Usually when you hear someone say "Yeah, I can pay $2,000 and get $50,000 in credit for my business!" it's usually a scam.  Any credible business or investor won't ask you to pay up front for them to send you an exponential amount of money.

Do you know who does as for a pre-payment?  Scammers!

Avoid these systems like the plague because you will only be digging a hole for yourself that will be more difficult to get out of.  It also won't sound good when you tell a real investor "I paid a company $2,000 for a loan but they ended up scamming me, and that's why I contacted you".  The investor will only hear "I'm dumb and throw my money at anyone that says I can make more money" lol 5 things you MUST avoid when you

5. Not having everything written down in terms of cash flow
If someone came up to you on the street and said "Hey man, I'm making $5,000 a month from my system but I'm limited by my capital.  Can you sign a check for $100,000 and make it out to me for 10% of my business?" you would tell them to go to hell because they wouldn't have anything in writing.  Even if they did, it would likely be falsified and you wouldn't know because you didn't verify anything.

You will need to have everything tracked so that you can give any investing firm accurate details on what you're doing with the money coming in and out.  They won't invest in you unless they're sure you're doing everything right and there's potential 5 things you MUST avoid when you

In Conclusion:
I do love bootstrapping, but if you want to start off in 5th gear then you can try to get an investor to come in and help out.  You will need to do everything right from the beginning and run your business without any snags.  You can't have any debt or fall for any scams because the investment firm will see that as you don't know what you're doing. 

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I have financed my brick and mortar business through bank loan. Based on my experience of applying for bank loan, doing paper work, getting approval and investing in the business, I can say, it is really a tough process. First of all before you apply for loan, you must already have a functioning business. banks do not invest in the projects that is yet to start. You have a running business and yoiu make a plan to upgrade your business. You will show the loan officer how much money you need, where you are going to put money, how you will be earning and how you will be paying back. If everything sounds authentic, the bank starts processing. You also need to have fixed asset as security bond.

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I agree bank loan is one of the tiresome process. And the thing is that you need some contacts for this. And people then build up from that process. So you can see that if capital is not given by the bank, then you have to move through their criteria and often even may look for the different banks. I have gone through those chains. And I have found out that it can be really hard.

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You are right with the bank loan application that you will feel exhausted after completing the requirements. When we applied for a housing loan in the bank where my husband was employed, it took us more than a week to complete the required papers that didn’t include the need for certification and notarization. It’s really sad that banks have a rigorous process that the people are turned off and they just borrow from usurers.

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Because of complications in the bank loan process, in our country micro credit finances and co-operatives are sprouting. While there is limitation on the loan amount in micro credit and co-operatives, people are burrowing from these financial instutions more than from banks. These days banks are only financing big projects, they are only working with well known businesses.

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Getting Loan from a bank is pretty stressful.I will also let you know banks want a situation where you can't pay back so your fixed Asset can belong to them.
An investor should have that in mind and work very hard knowing nothing good comes easy.

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Those are some really amazing tips especially for a newb like me when it comes to seeking any sort of investments. I have never tried to acquire one but just knowing what to look out for and be careful about is great. A very informative read.

The equity and investment talk reminded me of the TV show called the Shark Tank, haha. I remember how those guys always try to trick entrepreneurs and get a nice big juicy percentage of equity.

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I think the number one thing is not to get money to just start a business especially if it the trial and error type.It could be depressing when you didn't get the business off the ground but you are already in heavy debt.I once got myself into this mess and it wasn't funny at all.

valid points @RAZZY

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I agree I have seen people making few dollars a day and climbing on top with 1000$ a day. I meant to say there are time when things may not be need of the VC. And people should consider spending more time and money into the growth. Many business don't know how to do that. And they end up making some mistakes that lead to loss more than growth. That's what I have found out in that case.

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Starting a business is really not easy. It requires great planning and this is something that you cannot do by yourself. You need expert advice. You need to screen the market you are entering to obtain the right information. Anyway, you have provided some very useful information above. I know some startups who have fell for those scams you mentioned. Many people also think that they need a huge sum of money to start the business. I have personally witnessed some businesses growing over time.

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Yes, I agree with this. Proper planning is required. There is a need to learn the business and go through an example of operations done by others if possible. I have seen many businesses fail as they think too far ahead. Remember to start small so that things can be managed alone. Otherwise, get some help from people you trust. Document everything and get legal advice if unsure.

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Yes, you have to be effectively prepared and possess a bit of savvy and to do a bit of homework on the bank or investor to seek to have an insight into operational procedures.These factors along with those important tips above should go a far way in helping the capital seeker to probably get a fair deal.

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Many financial backers want to know the proof that you are responsibly manage money and pay your debt on time. This proof is your track record. You should know your credit history as your lenders, creditors want to take close look on it. Don't let late payments to your creditors. It will give bad impression in them and you will loose them. Do proper homework of your backer.Match your financial needs and business strategy to the right backers.

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With the credit card debt, it is safer if you don’t have any bad credit record. I have a relative who had been delinquent with the credit card sometime in her life. And when she was ready to take a housing loan, the credit investigator found out about her delinquency before. That ruined her chances of getting a housing loan approved. Maybe we have to be very careful when using the credit card because it is our credit profile that is at stake.

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