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Ways to Acquire Capital

Raising capital is not as mysterious as it seems. There are all kinds of sources of capital out there — if you know where to look. As your business grows, you'll learn which sources best suit the needs of your company. In the meantime, here are some places to start your search:

Personal Savings

The first place to start looking for capital for your business is in your personal savings account, especially if you are just starting your business. You may have the best business idea on the planet, but it's going to be difficult to convince others to invest in it until you have proven your ability to turn a profit

Many small business owners even go so far as to mortgage their homes to raise the capital they need. There is no standard rule of thumb about how much of your own money to invest in your business, but use common sense. What will happen if your business fails? Will you be forced to declare bankruptcy, lose your home, or (gasp!) go back to work for your old employer?

Family and Friends

Your family and friends are another great source of capital. It's common for small business owners to borrow money from acquaintances interest-free, or at least at a substantially lower rate than they would have paid had they borrowed from a commercial lender.

Understandably, many small business owners find it difficult to ask their friends and family members for capital loans. You can get past this hurdle by providing them with a way to gracefully say no to your request without damaging your relationship.

Commercial Loans

Some of the most common sources of capital are commercial banks and finance companies. Many lenders specialize in meeting the financing needs of small businesses and offer a wide range of financial products ranging from short-term lines of credit to long-term capital loans and mortgages.

Since small business loans are specifically structured to accommodate small businesses, it's important to make a distinction between business financing and personal financing. If possible, avoid taking out personal loans (or worse yet using personal credit cards) to finance your company. Instead, talk to your lender about a small business loan with a repayment schedule and interest rate that is more suited to your business needs.

Other Investors

Another way to raise capital for your business is to find other investors who are willing to provide capital in exchange for a percentage share of your company. If you decide to go this route, know what you're getting into ahead of time. Get legal counsel about how to structure the investment in a way that protects your company and allows you to retain control over its operation and future direction. Also, make sure you have a written agreement that clearly describes how profits will be distributed and the process by which the investor can divest his capital from the business.