How to Finance a Used Car

How to Finance a Used Car.

If you need a car and can't afford to buy one with cash, financing is always an option. If you want to finance a used car, you have the choice of getting your own direct financing, or having the dealer obtain financing for you. If you have a low credit score, "Buy Here Pay Here" lots may be your only option, but should only be used as a last resort.


Method 1 Getting a Direct Loan.

1. Request a copy of your credit report. Knowing your credit score will give you a good idea of what kind of rates and terms you'll potentially be offered. In the United States, you're entitled to one free copy of your credit report every year.

Check your report for errors or inaccuracies that could be affecting your credit score.

If you have a credit score of 680 or above, you're a prime borrower and should be able to get the best possible rates. The higher your score, the lower the rate you can potentially negotiate with lenders.

2. Contact local banks and credit unions. If you have had a credit or savings account with the same bank for a number of years, start there when looking for a direct car loan. Your history as a customer may get you better rates.

Branch out to other banks in your area. Credit unions often have more forgiving loan terms and fewer restrictions.

Banks typically won't do a direct car loan for a car purchased from a private owner or an independent dealership. In those situations, you may need to try to take out a personal loan. This is also true if you're buying a collector or exotic car.

3. Try online lenders. If you're not a prime borrower, it's still possible to get a direct loan for a used car. There are a number of online lenders who are willing to finance used cars for people with less than stellar credit.

Since online lenders have less overhead, they typically will offer you a lower rate than you could get from a brick-and-mortar bank or credit union.

These loans may come with more restrictions than the direct loan you could get from a bank with better credit. For example, they may not finance cars more than five years old, or cars with over 100,000 miles.

4. Get rates from multiple lenders. Before you choose a loan, apply for several so you can compare the rates offered. Many banks and lending companies have a pre-approval process that won't affect your credit.

Multiple offers may give you the opportunity to negotiate for a better deal. For example, if you got a better rate from a different bank than from your own bank, you could get your bank to match that rate to get your business.

5. Complete a loan application. Once you've decided which lender you want to use for your financing, you'll typically have to fill out a full loan application. Many lenders give you the option to complete the application online.

You'll need to provide basic identification information, such as your driver's license and Social Security numbers. You also may need to provide basic financial information regarding your income and debts.

If you've had some credit problems in the past, you may want to go into a bank and apply for the loan in person so you can talk to a lending agent.

Your loan agreement will include basic requirements that the car must meet. As long as the car meets these requirements, you can use the financing to purchase the car.

6. Negotiate with the dealer. In most cases, you're going to secure direct or "blank check" financing before you find the specific car you want to buy. Having financing already secured puts you in a stronger position to get the best price from the dealer.

When you bring your own financing, you're saving the dealer a lot of costs. Ask if there's a discount available for that.

Since you're buying a used car, have it inspected before you buy it and go over the car's history. The car is a better buy if it's had fewer owners and never been in an accident.

7. Give the dealer your blank check. Lender policies vary, but in most cases you'll get a check for the exact amount of your car, or a blank check that's worth any amount up to the maximum amount your lender has approved.

When you buy a car using direct financing, you still must maintain full coverage insurance on the car. Your loan agreement will include information on the minimum amounts of coverage you must maintain.


Method 2 Using Dealer Financing.

1. Research interest rates. Dealers have special financing offers available throughout the year. Especially if you're not picky about the make or model of your car, shop around and see who has the best deal.

Know your credit score and how qualified you are for different offers. Typically the best offers are only available for prime borrowers with credit in the 700s or higher.

If you're trading in an old car, look for dealer offers to double the price on a trade-in, or pay a minimum amount for any trade-in regardless of its condition.

2. Choose your car. If you've done your research, you have a few dealerships in mind. You should be able to evaluate their inventory online before you go visit in person. Find the best car for you, looking at overall price.

Dealers may advertise monthly payment amounts rather than total price. This can be a way to charge you a higher interest rate.

Dealers typically will finance any car on their lot, so you may have more variety to choose from if you use dealer financing than you would if you used direct financing. However, this might not necessarily be a good thing – you still need to check the car's history and have it inspected before you buy.

3. Offer a sizable down payment. Cars depreciate in value. If you're buying a used car, you want to finance as little of the total price of the car as possible. A down payment of 10 to 20 percent of the purchase price of the car typically will get you the best rates.

A sizable down payment can help you avoid being underwater on your loan – meaning you owe more for the car than it is worth. This is particularly important to avoid when you're financing a used car, which could develop mechanical problems relatively quickly.

4. Apply for financing through the dealer. You'll need basic identification information as well as information about your income and employment to complete the financing application at the dealership.

It may take a few minutes, but in most cases the dealer will have a financing offer available for you that day. Then they'll call you back into an office to discuss the terms you've been offered.

The finance company may require additional documents from you, such as pay stubs to verify income. If the dealer mentions any of these, make sure you get copies to the dealer as soon as possible so as not to jeopardize your financing offer.

5. Negotiate the deal. If you've done your research and know your credit score, you may be able to get better terms from the dealer than what you're initially offered. Review each term and see if you can improve it.

For example, you typically want the shortest term loan, since it will usually have the lowest interest rates. But dealers often focus on the amount of the monthly payment. Financing for a shorter term does mean a higher monthly payment, but it will save you money overall.

6. Use cash for extras. Dealers tend to tack on extra fees, including sales tax, registration fees, and document or destination fees. You also may end up paying extra for dealer warranties, especially for a used car.

The dealer typically has no problem rolling these extra fees into your financing, but there's no point in paying interest on fees and tax. Pay that out of pocket if you can.


Method 3 Using "Buy Here Pay Here" Financing

1. Exhaust all other options. If you need a car and have had credit problems or have an extremely low credit score, BHPH financing is available for you. However, due to the high rates you should consider this only as a last resort.

There are some franchised dealerships, particularly Ford and Chevy dealerships, who are willing to work with customers who have bad credit. It may be possible for you to get a loan there. It wouldn't be the best rates, but it you would still pay less than you would at a BHPH lot.

If you have a relative with a good credit score, you might find out if they are willing to co-sign on the loan with you. That could get you a better rate or make traditional lenders more willing to work with you. This option can be especially valuable if you're young and don't have much, if any, credit history.

2. Ask if the dealer reports to credit bureaus. Because BHPH lots finance the car themselves, they don't always report to credit bureaus. If you have bad credit or no credit, you want the payments you make for your car reported so you can start to rebuild your credit.

You may have to visit several lots before you find one that reports to credit bureaus, but be persistent.

3. Research the car thoroughly. Any car you buy from a BHPH lot typically is sold "as is." Some of these cars may have mechanical problems, and the lot may not be required to disclose those problems before you buy the car.

Demand a Carfax or similar car history report so you can see how many owners the car has had and whether it's been in an accident. These lots typically have older cars, so they've likely had several owners – but a car that's changed hands several times in the past few years may be a red flag.

Take the car to a reputable mechanic before you buy it and have them conduct a thorough inspection. If there are any major repairs that need to be made, you may be able to convince the lot to make those repairs before you purchase the car.

4. Negotiate with the dealer. BHPH dealers often present the price of a car – and the financing terms – as though they are non-negotiable, but that's typically not true. Even though you may not be in the best bargaining position, you can still try to get a better deal.

The more of a down payment you can make, the better your terms typically will be. These lots often specialize in low down payments, but that doesn't mean you can't pay more.

If you're buying a car at a BHPH lot, your down payment should be as high as possible to keep you from ending up underwater – try to aim for somewhere between 40 and 60 percent down.

5.
Make your payments on time. You typically won't have to make payments for a long term, but it's essential to make every payment on time if you want to rebuild your credit. Some BHPH lots will repossess a car after as few as one missed payment.

Some BHPH lots require you to make a trip to the lot with your payment. Depending on how the financing is structured, you may be required to make weekly or bi-monthly payments. If you have a checking account and the lot offers automatic payments, sign up for them so you won't have to worry about it.

At most BHPH lots, you won't pay any less if you pay the loan off early. Ask about this when you buy the car. If the lot is reporting to the credit bureau and you won't save any money by paying the loan off early, just keep making the payments on time. All those payments will reflect well on your credit score.

November 22, 2019

how to finance a used car

How to Finance a Used Car.

If you need a car and can't afford to buy one with cash, financing is always an option. If you want to finance a used car, you have the choice of getting your own direct financing, or having the dealer obtain financing for you. If you have a low credit score, "Buy Here Pay Here" lots may be your only option, but should only be used as a last resort.







Method 1 Getting a Direct Loan.



1. Request a copy of your credit report. Knowing your credit score will give you a good idea of what kind of rates and terms you'll potentially be offered. In the United States, you're entitled to one free copy of your credit report every year.

Check your report for errors or inaccuracies that could be affecting your credit score.

If you have a credit score of 680 or above, you're a prime borrower and should be able to get the best possible rates. The higher your score, the lower the rate you can potentially negotiate with lenders.



2. Contact local banks and credit unions. If you have had a credit or savings account with the same bank for a number of years, start there when looking for a direct car loan. Your history as a customer may get you better rates.

Branch out to other banks in your area. Credit unions often have more forgiving loan terms and fewer restrictions.

Banks typically won't do a direct car loan for a car purchased from a private owner or an independent dealership. In those situations, you may need to try to take out a personal loan. This is also true if you're buying a collector or exotic car.



3. Try online lenders. If you're not a prime borrower, it's still possible to get a direct loan for a used car. There are a number of online lenders who are willing to finance used cars for people with less than stellar credit.

Since online lenders have less overhead, they typically will offer you a lower rate than you could get from a brick-and-mortar bank or credit union.

These loans may come with more restrictions than the direct loan you could get from a bank with better credit. For example, they may not finance cars more than five years old, or cars with over 100,000 miles.



4. Get rates from multiple lenders. Before you choose a loan, apply for several so you can compare the rates offered. Many banks and lending companies have a pre-approval process that won't affect your credit.

Multiple offers may give you the opportunity to negotiate for a better deal. For example, if you got a better rate from a different bank than from your own bank, you could get your bank to match that rate to get your business.



5. Complete a loan application. Once you've decided which lender you want to use for your financing, you'll typically have to fill out a full loan application. Many lenders give you the option to complete the application online.

You'll need to provide basic identification information, such as your driver's license and Social Security numbers. You also may need to provide basic financial information regarding your income and debts.

If you've had some credit problems in the past, you may want to go into a bank and apply for the loan in person so you can talk to a lending agent.

Your loan agreement will include basic requirements that the car must meet. As long as the car meets these requirements, you can use the financing to purchase the car.



6. Negotiate with the dealer. In most cases, you're going to secure direct or "blank check" financing before you find the specific car you want to buy. Having financing already secured puts you in a stronger position to get the best price from the dealer.

When you bring your own financing, you're saving the dealer a lot of costs. Ask if there's a discount available for that.

Since you're buying a used car, have it inspected before you buy it and go over the car's history. The car is a better buy if it's had fewer owners and never been in an accident.



7. Give the dealer your blank check. Lender policies vary, but in most cases you'll get a check for the exact amount of your car, or a blank check that's worth any amount up to the maximum amount your lender has approved.

When you buy a car using direct financing, you still must maintain full coverage insurance on the car. Your loan agreement will include information on the minimum amounts of coverage you must maintain.







Method 2 Using Dealer Financing.



1. Research interest rates. Dealers have special financing offers available throughout the year. Especially if you're not picky about the make or model of your car, shop around and see who has the best deal.

Know your credit score and how qualified you are for different offers. Typically the best offers are only available for prime borrowers with credit in the 700s or higher.

If you're trading in an old car, look for dealer offers to double the price on a trade-in, or pay a minimum amount for any trade-in regardless of its condition.



2. Choose your car. If you've done your research, you have a few dealerships in mind. You should be able to evaluate their inventory online before you go visit in person. Find the best car for you, looking at overall price.

Dealers may advertise monthly payment amounts rather than total price. This can be a way to charge you a higher interest rate.

Dealers typically will finance any car on their lot, so you may have more variety to choose from if you use dealer financing than you would if you used direct financing. However, this might not necessarily be a good thing – you still need to check the car's history and have it inspected before you buy.



3. Offer a sizable down payment. Cars depreciate in value. If you're buying a used car, you want to finance as little of the total price of the car as possible. A down payment of 10 to 20 percent of the purchase price of the car typically will get you the best rates.

A sizable down payment can help you avoid being underwater on your loan – meaning you owe more for the car than it is worth. This is particularly important to avoid when you're financing a used car, which could develop mechanical problems relatively quickly.



4. Apply for financing through the dealer. You'll need basic identification information as well as information about your income and employment to complete the financing application at the dealership.

It may take a few minutes, but in most cases the dealer will have a financing offer available for you that day. Then they'll call you back into an office to discuss the terms you've been offered.

The finance company may require additional documents from you, such as pay stubs to verify income. If the dealer mentions any of these, make sure you get copies to the dealer as soon as possible so as not to jeopardize your financing offer.



5. Negotiate the deal. If you've done your research and know your credit score, you may be able to get better terms from the dealer than what you're initially offered. Review each term and see if you can improve it.

For example, you typically want the shortest term loan, since it will usually have the lowest interest rates. But dealers often focus on the amount of the monthly payment. Financing for a shorter term does mean a higher monthly payment, but it will save you money overall.



6. Use cash for extras. Dealers tend to tack on extra fees, including sales tax, registration fees, and document or destination fees. You also may end up paying extra for dealer warranties, especially for a used car.

The dealer typically has no problem rolling these extra fees into your financing, but there's no point in paying interest on fees and tax. Pay that out of pocket if you can.







Method 3 Using "Buy Here Pay Here" Financing



1. Exhaust all other options. If you need a car and have had credit problems or have an extremely low credit score, BHPH financing is available for you. However, due to the high rates you should consider this only as a last resort.

There are some franchised dealerships, particularly Ford and Chevy dealerships, who are willing to work with customers who have bad credit. It may be possible for you to get a loan there. It wouldn't be the best rates, but it you would still pay less than you would at a BHPH lot.

If you have a relative with a good credit score, you might find out if they are willing to co-sign on the loan with you. That could get you a better rate or make traditional lenders more willing to work with you. This option can be especially valuable if you're young and don't have much, if any, credit history.



2. Ask if the dealer reports to credit bureaus. Because BHPH lots finance the car themselves, they don't always report to credit bureaus. If you have bad credit or no credit, you want the payments you make for your car reported so you can start to rebuild your credit.

You may have to visit several lots before you find one that reports to credit bureaus, but be persistent.



3. Research the car thoroughly. Any car you buy from a BHPH lot typically is sold "as is." Some of these cars may have mechanical problems, and the lot may not be required to disclose those problems before you buy the car.

Demand a Carfax or similar car history report so you can see how many owners the car has had and whether it's been in an accident. These lots typically have older cars, so they've likely had several owners – but a car that's changed hands several times in the past few years may be a red flag.

Take the car to a reputable mechanic before you buy it and have them conduct a thorough inspection. If there are any major repairs that need to be made, you may be able to convince the lot to make those repairs before you purchase the car.



4. Negotiate with the dealer. BHPH dealers often present the price of a car – and the financing terms – as though they are non-negotiable, but that's typically not true. Even though you may not be in the best bargaining position, you can still try to get a better deal.

The more of a down payment you can make, the better your terms typically will be. These lots often specialize in low down payments, but that doesn't mean you can't pay more.

If you're buying a car at a BHPH lot, your down payment should be as high as possible to keep you from ending up underwater – try to aim for somewhere between 40 and 60 percent down.



5.

Make your payments on time. You typically won't have to make payments for a long term, but it's essential to make every payment on time if you want to rebuild your credit. Some BHPH lots will repossess a car after as few as one missed payment.

Some BHPH lots require you to make a trip to the lot with your payment. Depending on how the financing is structured, you may be required to make weekly or bi-monthly payments. If you have a checking account and the lot offers automatic payments, sign up for them so you won't have to worry about it.

At most BHPH lots, you won't pay any less if you pay the loan off early. Ask about this when you buy the car. If the lot is reporting to the credit bureau and you won't save any money by paying the loan off early, just keep making the payments on time. All those payments will reflect well on your credit score.

November 20, 2019

How to Finance a Business Purchase

How to Finance a Business Purchase.

Buying an existing business can be convenient in a number of ways. You're buying into a proven business model with existing customers, marketing, and products. With this framework in place, you can also begin repaying your purchase expenses immediately with the profits earned by the business. However, financing that business purchase in the first place can be just as expensive as starting a business yourself. Consider the following methods for coming up with the capital to purchase a business and choose those that best suit your needs.





Taking Out a Loan



Investigate SBA loans. The Small Business Administration (SBA) guarantees loans to small business to help them get started and expand their operations. To get started on the road towards acquiring SBA financing, visit a local bank or financial institution that provides SBA loans. The SBA loan makes it easier for you to acquire financing, as part of the loan is repaid by the SBA if you fail to make payments. Specifically, the loan program you will be looking for is the SBA Basic 7(a) loan program, which is used for acquiring or starting new businesses. To qualify for this type of loan, you must.

Own or seek to own a small business as defined by the SBA. This information can be found on their website.

Plan to operate for profit.

Plan to operate within the United States or its possessions.

Have your own assets invested in the business.

Show a need for the loan.

Not owe the US government any money.



Meet with financial institutions. Financing is also available through local lending institutions, like banks and credit unions. However, this type of lending can be very difficult to secure, particularly if you have less-than-stellar credit or if there are not significant personal or business assets that can be used as collateral. To qualify for a traditional bank loan, you will need demonstrable management experience, strong existing cash flows, experience in the industry, and a high personal credit score. It may also be easier for you to obtain a loan if you have an existing, strong relationship with the bank providing the loan.

If you are a woman, veteran, or minority, banks may have special lending programs that you can qualify for.



Assess the collateral you can provide. Your collateral is the assets, either yours or the business's, that you can provide as insurance in case you default on your loan. For some business loans, these may need to be worth as much as 50 to 70 percent of the loan value. When providing collateral for the banks to use, you can include any of the following:

Equity in your own home.

Assets owned by the business, like accounts receivable and inventory.

A personal guarantee. This essentially means that, in the event of a default, you are personally liable to repay a certain amount of the loan value.

Most lenders, including the SBA, require a personal guarantee for a loan in addition to any collateral pledged. This is because they would prefer avoiding have to take possession of the collateral and go through the subsequent sale.



Get pre-qualified for several loans. Before finalizing the purchase of the business, you will need one or several letters of pre-qualification for loans. This means going through the loan process with each lender and getting the go-ahead from them to purchase the business. You can then show the letters to the seller and finalize the purchase, at which point you will need to actually take out one of the loans that you are pre-qualified for.

Getting pre-qualified for several loans is advantageous in case the lending requirements change between your pre-qualification and the close of the sale.

You will need to be pre-qualified for more than the purchase price of the business. You should also include about 90 days of working capital (money used to keep the business functioning, like utilities and inventory purchasing money). You can work with the current owner to assess how much is needed.



Consider alternative loan options. There are many other sources of loans available to finance the initial purchase of a business. For some people, there may be an opportunity to borrow money from friends or family. However, bear in mind that this may damage your relationship with that person if things go south. Some other options you can consider include:

Peer-to-peer (P2P) financing. Online lending markets like LendingClub.com and Prosper.com allow you to borrow small amounts (generally less than $25,000) from other people. However, rates on these sites are typically higher than what a bank or the SBA could offer you.

Microloans. Microloans are for smaller amounts that traditional business loans (usually less than $50,000) and have shorter durations (under six years). Check with the SBA or a microlending specialist to investigate your options.







Financing the Purchase With Your Own Assets.



Use your own savings. The easiest and cheapest way to finance your own business is with your own personal savings. This includes any savings accounts, CDs, investment accounts, or other liquid accounts you hold. By using the money from these accounts to finance your personal, you can avoid having to work with partners, investors, or lenders when running your business. However, it is rare that an individual has enough money in these accounts to purchase a business.



Sell any valuable assets you currently own. Another way to raise money is to sell off valuable assets that you own. Parcels of land, non-essential vehicles, and boats can all be sold to raise this type of money.



Borrow against your home equity. You can borrow against the value of your home using a second mortgage or a home equity line of credit (HELOC). However, this requires having enough equity in your home in the first place. More importantly, it also introduces the risk that, in the event of the business's default, your house may be foreclosed upon by the lender. Consider the risks and try every other options available to you before pursuing this type of financing.



Avoid purchasing the business with your retirement savings. While it is possible to roll your IRA or 401(k) savings balances into a business venture without taking a tax hit, doing so is incredibly risky. If your business fails to perform as expected, you could lose all of the money you have saved for retirement. Personal finance experts recommend against using this as a method of business financing.







Bringing On Investors or Partners.



Consider finding a partner or several of them. A partner is someone who provides some initial purchase money for the business in exchange for an ownership share. Your partner will likely want to be involved in the business in some way, so make sure to only take on a partner that you can work well with. And being personally close with someone doesn't make them a good partner; sometimes a trusted or knowledgable co-worker or acquaintance can make a better partner than a friend or family member.

In addition, make sure to draw up a legal contract that clarifies the terms of the partnership. This agreement should list how disputes are settled, how major decisions are made, and exactly how profits are divided.



Work with a silent partner. A silent partner is one that contributes capital to the business, but has no say in its operations. However, many silent partners eventually want to have a say in how the business is run. Again, to ensure that this relationship works as planned, draw up a partnership agreement that specifies the terms of your partnership in detail.



Bring on angel investors. An angel investor is a wealthy private investor who gives start-up capital to new businesses and new business owners in exchange for equity in that business. Businesses with angel investors benefits from the angel investor's industry expertise, business contacts, and financial resources. Locating angel investors, however, can be difficult. You'll have to locate a high net worth individual who shares your passion for the business you are buying and its industry. Then, you'll have to convince them of your own management skill and your ability to give them a good return on their money.

Angel Investors can be located by visiting the Angel Capital Association's website.



Engage in equity crowdfunding. Equity crowdfunding, which involves selling small stakes in your business to a large number of small investors, is a relative newcomer in the world of business financing. While equity crowdfunding has been around for years, operating through sites like SeedInvest, it has recently become tightly regulated by the Securities and Exchange Commission (SEC). Equity crowdfunding can be an effective way to raise money, but only with the proper guidance, as following SEC guidelines can be complicated.







Getting Seller Financing



Consider the benefits and drawbacks of seller financing. Seller financing, also called owner financing, is a purchase arrangement in which you repay the sale price of the business directly to its previous owner over several years. For the buyer, this provides some flexibility in repaying the loan, such as negotiating a longer repayment period, a temporary reprieve from payments, or reducing the price in exchange for letting the owner keep some equity in the business. However, this type of arrangement is typically more expensive, with the owner charging a higher interest rate than the bank would charge.

Ideally, the buyer should negotiate an arrangement where all or a portion of the loan financed by the seller may be contingent upon the profits reached and payable over a limited term. This protects the buyer in case profits are not as high as expected.

Obtaining seller financing may give you more power in negotiating down the price of the business.

Doing so also gives the seller reason to help you out more in running and managing the business.[



Ask the seller if they would consider seller financing. Start by asking the seller directly if they would consider seller financing. It may help if you explain to them that this will result in their getting more money over time, as they get to keep the interest on your loan (rather than the bank keeping it). If they agree, you can begin negotiating a contract.

If possible, avoid securing the seller with assets purchased. This gives you a cushion if additional financing is needed to get the business is running smoothly.



Negotiate a contract. Work with the seller to form the terms of sale. Start by offering to make a down payment with what you can gather on your own, say 10 to 20 percent of the sale price. Try to offer as large of a down payment as you can afford; this will only help you and save you money in the long run. Then discuss a repayment period and interest rate. Try to negotiate a longer repayment period and lower interest rate to make sure that you can afford the payments.

You may be able to agree on a large, balloon payment in a number of years. This will reduce your monthly payments. Then, you can get a bank loan or use your savings to cover the balloon payment.

Alternately, where a C corporation is involved in the purchase, issuing preferred stock may be a better option than debt for the buyer when repaying the balloon payment.



Have a lawyer review the contract. Ideally, you should have an attorney that specializes in business contracts draw up the contract. However, you can also have one review the contract to ensure that your interests are represented and that there are no surprises waiting for you in the wording of the contract. You may also want to have an accountant review the financials of the deal to make sure everything checks out.

The lawyer, and possibly an accountant, should confirm the validity of the financial statements, specifically the identity, value and location of assets and liabilities.



Finalize the deal. Once you've been assured that the contract is right for both you and the seller, close the deal and take control of the business. With seller financing, you'll likely be able to convince the previous owner to help you out with getting started as the manager of your new business.

November 14, 2019

how to finance a business purchase

How to Finance a Business Purchase.

Buying an existing business can be convenient in a number of ways. You're buying into a proven business model with existing customers, marketing, and products. With this framework in place, you can also begin repaying your purchase expenses immediately with the profits earned by the business. However, financing that business purchase in the first place can be just as expensive as starting a business yourself. Consider the following methods for coming up with the capital to purchase a business and choose those that best suit your needs.





Taking Out a Loan



Investigate SBA loans. The Small Business Administration (SBA) guarantees loans to small business to help them get started and expand their operations. To get started on the road towards acquiring SBA financing, visit a local bank or financial institution that provides SBA loans. The SBA loan makes it easier for you to acquire financing, as part of the loan is repaid by the SBA if you fail to make payments. Specifically, the loan program you will be looking for is the SBA Basic 7(a) loan program, which is used for acquiring or starting new businesses. To qualify for this type of loan, you must.

Own or seek to own a small business as defined by the SBA. This information can be found on their website.

Plan to operate for profit.

Plan to operate within the United States or its possessions.

Have your own assets invested in the business.

Show a need for the loan.

Not owe the US government any money.



Meet with financial institutions. Financing is also available through local lending institutions, like banks and credit unions. However, this type of lending can be very difficult to secure, particularly if you have less-than-stellar credit or if there are not significant personal or business assets that can be used as collateral. To qualify for a traditional bank loan, you will need demonstrable management experience, strong existing cash flows, experience in the industry, and a high personal credit score. It may also be easier for you to obtain a loan if you have an existing, strong relationship with the bank providing the loan.

If you are a woman, veteran, or minority, banks may have special lending programs that you can qualify for.



Assess the collateral you can provide. Your collateral is the assets, either yours or the business's, that you can provide as insurance in case you default on your loan. For some business loans, these may need to be worth as much as 50 to 70 percent of the loan value. When providing collateral for the banks to use, you can include any of the following:

Equity in your own home.

Assets owned by the business, like accounts receivable and inventory.

A personal guarantee. This essentially means that, in the event of a default, you are personally liable to repay a certain amount of the loan value.

Most lenders, including the SBA, require a personal guarantee for a loan in addition to any collateral pledged. This is because they would prefer avoiding have to take possession of the collateral and go through the subsequent sale.



Get pre-qualified for several loans. Before finalizing the purchase of the business, you will need one or several letters of pre-qualification for loans. This means going through the loan process with each lender and getting the go-ahead from them to purchase the business. You can then show the letters to the seller and finalize the purchase, at which point you will need to actually take out one of the loans that you are pre-qualified for.

Getting pre-qualified for several loans is advantageous in case the lending requirements change between your pre-qualification and the close of the sale.

You will need to be pre-qualified for more than the purchase price of the business. You should also include about 90 days of working capital (money used to keep the business functioning, like utilities and inventory purchasing money). You can work with the current owner to assess how much is needed.



Consider alternative loan options. There are many other sources of loans available to finance the initial purchase of a business. For some people, there may be an opportunity to borrow money from friends or family. However, bear in mind that this may damage your relationship with that person if things go south. Some other options you can consider include:

Peer-to-peer (P2P) financing. Online lending markets like LendingClub.com and Prosper.com allow you to borrow small amounts (generally less than $25,000) from other people. However, rates on these sites are typically higher than what a bank or the SBA could offer you.

Microloans. Microloans are for smaller amounts that traditional business loans (usually less than $50,000) and have shorter durations (under six years). Check with the SBA or a microlending specialist to investigate your options.







Financing the Purchase With Your Own Assets.



Use your own savings. The easiest and cheapest way to finance your own business is with your own personal savings. This includes any savings accounts, CDs, investment accounts, or other liquid accounts you hold. By using the money from these accounts to finance your personal, you can avoid having to work with partners, investors, or lenders when running your business. However, it is rare that an individual has enough money in these accounts to purchase a business.



Sell any valuable assets you currently own. Another way to raise money is to sell off valuable assets that you own. Parcels of land, non-essential vehicles, and boats can all be sold to raise this type of money.



Borrow against your home equity. You can borrow against the value of your home using a second mortgage or a home equity line of credit (HELOC). However, this requires having enough equity in your home in the first place. More importantly, it also introduces the risk that, in the event of the business's default, your house may be foreclosed upon by the lender. Consider the risks and try every other options available to you before pursuing this type of financing.



Avoid purchasing the business with your retirement savings. While it is possible to roll your IRA or 401(k) savings balances into a business venture without taking a tax hit, doing so is incredibly risky. If your business fails to perform as expected, you could lose all of the money you have saved for retirement. Personal finance experts recommend against using this as a method of business financing.







Bringing On Investors or Partners.



Consider finding a partner or several of them. A partner is someone who provides some initial purchase money for the business in exchange for an ownership share. Your partner will likely want to be involved in the business in some way, so make sure to only take on a partner that you can work well with. And being personally close with someone doesn't make them a good partner; sometimes a trusted or knowledgable co-worker or acquaintance can make a better partner than a friend or family member.

In addition, make sure to draw up a legal contract that clarifies the terms of the partnership. This agreement should list how disputes are settled, how major decisions are made, and exactly how profits are divided.



Work with a silent partner. A silent partner is one that contributes capital to the business, but has no say in its operations. However, many silent partners eventually want to have a say in how the business is run. Again, to ensure that this relationship works as planned, draw up a partnership agreement that specifies the terms of your partnership in detail.



Bring on angel investors. An angel investor is a wealthy private investor who gives start-up capital to new businesses and new business owners in exchange for equity in that business. Businesses with angel investors benefits from the angel investor's industry expertise, business contacts, and financial resources. Locating angel investors, however, can be difficult. You'll have to locate a high net worth individual who shares your passion for the business you are buying and its industry. Then, you'll have to convince them of your own management skill and your ability to give them a good return on their money.

Angel Investors can be located by visiting the Angel Capital Association's website.



Engage in equity crowdfunding. Equity crowdfunding, which involves selling small stakes in your business to a large number of small investors, is a relative newcomer in the world of business financing. While equity crowdfunding has been around for years, operating through sites like SeedInvest, it has recently become tightly regulated by the Securities and Exchange Commission (SEC). Equity crowdfunding can be an effective way to raise money, but only with the proper guidance, as following SEC guidelines can be complicated.







Getting Seller Financing



Consider the benefits and drawbacks of seller financing. Seller financing, also called owner financing, is a purchase arrangement in which you repay the sale price of the business directly to its previous owner over several years. For the buyer, this provides some flexibility in repaying the loan, such as negotiating a longer repayment period, a temporary reprieve from payments, or reducing the price in exchange for letting the owner keep some equity in the business. However, this type of arrangement is typically more expensive, with the owner charging a higher interest rate than the bank would charge.

Ideally, the buyer should negotiate an arrangement where all or a portion of the loan financed by the seller may be contingent upon the profits reached and payable over a limited term. This protects the buyer in case profits are not as high as expected.

Obtaining seller financing may give you more power in negotiating down the price of the business.

Doing so also gives the seller reason to help you out more in running and managing the business.[



Ask the seller if they would consider seller financing. Start by asking the seller directly if they would consider seller financing. It may help if you explain to them that this will result in their getting more money over time, as they get to keep the interest on your loan (rather than the bank keeping it). If they agree, you can begin negotiating a contract.

If possible, avoid securing the seller with assets purchased. This gives you a cushion if additional financing is needed to get the business is running smoothly.



Negotiate a contract. Work with the seller to form the terms of sale. Start by offering to make a down payment with what you can gather on your own, say 10 to 20 percent of the sale price. Try to offer as large of a down payment as you can afford; this will only help you and save you money in the long run. Then discuss a repayment period and interest rate. Try to negotiate a longer repayment period and lower interest rate to make sure that you can afford the payments.

You may be able to agree on a large, balloon payment in a number of years. This will reduce your monthly payments. Then, you can get a bank loan or use your savings to cover the balloon payment.

Alternately, where a C corporation is involved in the purchase, issuing preferred stock may be a better option than debt for the buyer when repaying the balloon payment.



Have a lawyer review the contract. Ideally, you should have an attorney that specializes in business contracts draw up the contract. However, you can also have one review the contract to ensure that your interests are represented and that there are no surprises waiting for you in the wording of the contract. You may also want to have an accountant review the financials of the deal to make sure everything checks out.

The lawyer, and possibly an accountant, should confirm the validity of the financial statements, specifically the identity, value and location of assets and liabilities.



Finalize the deal. Once you've been assured that the contract is right for both you and the seller, close the deal and take control of the business. With seller financing, you'll likely be able to convince the previous owner to help you out with getting started as the manager of your new business.

November 13, 2019

how to finance a business purchase

How to Finance a Business Purchase.

Buying an existing business can be convenient in a number of ways. You're buying into a proven business model with existing customers, marketing, and products. With this framework in place, you can also begin repaying your purchase expenses immediately with the profits earned by the business. However, financing that business purchase in the first place can be just as expensive as starting a business yourself. Consider the following methods for coming up with the capital to purchase a business and choose those that best suit your needs.



Method 1 Taking Out a Loan.



1. Investigate SBA loans. The Small Business Administration (SBA) guarantees loans to small business to help them get started and expand their operations. To get started on the road towards acquiring SBA financing, visit a local bank or financial institution that provides SBA loans. The SBA loan makes it easier for you to acquire financing, as part of the loan is repaid by the SBA if you fail to make payments. Specifically, the loan program you will be looking for is the SBA Basic 7(a) loan program, which is used for acquiring or starting new businesses. To qualify for this type of loan, you must.

Own or seek to own a small business as defined by the SBA. This information can be found on their website.

Plan to operate for profit.

Plan to operate within the United States or its possessions.

Have your own assets invested in the business.

Show a need for the loan.

Not owe the US government any money.



2. Meet with financial institutions. Financing is also available through local lending institutions, like banks and credit unions. However, this type of lending can be very difficult to secure, particularly if you have less-than-stellar credit or if there are not significant personal or business assets that can be used as collateral. To qualify for a traditional bank loan, you will need demonstrable management experience, strong existing cash flows, experience in the industry, and a high personal credit score. It may also be easier for you to obtain a loan if you have an existing, strong relationship with the bank providing the loan.

If you are a woman, veteran, or minority, banks may have special lending programs that you can qualify for.



3. Assess the collateral you can provide. Your collateral is the assets, either yours or the business's, that you can provide as insurance in case you default on your loan. For some business loans, these may need to be worth as much as 50 to 70 percent of the loan value. When providing collateral for the banks to use, you can include any of the following:

Equity in your own home.

Assets owned by the business, like accounts receivable and inventory.

A personal guarantee. This essentially means that, in the event of a default, you are personally liable to repay a certain amount of the loan value.

Most lenders, including the SBA, require a personal guarantee for a loan in addition to any collateral pledged. This is because they would prefer avoiding have to take possession of the collateral and go through the subsequent sale.



4. Get pre-qualified for several loans. Before finalizing the purchase of the business, you will need one or several letters of pre-qualification for loans. This means going through the loan process with each lender and getting the go-ahead from them to purchase the business. You can then show the letters to the seller and finalize the purchase, at which point you will need to actually take out one of the loans that you are pre-qualified for.

Getting pre-qualified for several loans is advantageous in case the lending requirements change between your pre-qualification and the close of the sale.

You will need to be pre-qualified for more than the purchase price of the business. You should also include about 90 days of working capital (money used to keep the business functioning, like utilities and inventory purchasing money). You can work with the current owner to assess how much is needed.



5. Consider alternative loan options. There are many other sources of loans available to finance the initial purchase of a business. For some people, there may be an opportunity to borrow money from friends or family. However, bear in mind that this may damage your relationship with that person if things go south. Some other options you can consider include:

Peer-to-peer (P2P) financing. Online lending markets like LendingClub.com and Prosper.com allow you to borrow small amounts (generally less than $25,000) from other people. However, rates on these sites are typically higher than what a bank or the SBA could offer you.

Microloans. Microloans are for smaller amounts that traditional business loans (usually less than $50,000) and have shorter durations (under six years). Check with the SBA or a microlending specialist to investigate your options.



Method 2 Financing the Purchase With Your Own Assets.



1. Use your own savings. The easiest and cheapest way to finance your own business is with your own personal savings. This includes any savings accounts, CDs, investment accounts, or other liquid accounts you hold. By using the money from these accounts to finance your personal, you can avoid having to work with partners, investors, or lenders when running your business. However, it is rare that an individual has enough money in these accounts to purchase a business.



2. Sell any valuable assets you currently own. Another way to raise money is to sell off valuable assets that you own. Parcels of land, non-essential vehicles, and boats can all be sold to raise this type of money.



3. Borrow against your home equity. You can borrow against the value of your home using a second mortgage or a home equity line of credit (HELOC). However, this requires having enough equity in your home in the first place. More importantly, it also introduces the risk that, in the event of the business's default, your house may be foreclosed upon by the lender. Consider the risks and try every other options available to you before pursuing this type of financing.



4. Avoid purchasing the business with your retirement savings. While it is possible to roll your IRA or 401(k) savings balances into a business venture without taking a tax hit, doing so is incredibly risky. If your business fails to perform as expected, you could lose all of the money you have saved for retirement. Personal finance experts recommend against using this as a method of business financing.



Method 3 Bringing On Investors or Partners.



1. Consider finding a partner or several of them. A partner is someone who provides some initial purchase money for the business in exchange for an ownership share. Your partner will likely want to be involved in the business in some way, so make sure to only take on a partner that you can work well with. And being personally close with someone doesn't make them a good partner; sometimes a trusted or knowledgable co-worker or acquaintance can make a better partner than a friend or family member.

In addition, make sure to draw up a legal contract that clarifies the terms of the partnership. This agreement should list how disputes are settled, how major decisions are made, and exactly how profits are divided.



2. Work with a silent partner. A silent partner is one that contributes capital to the business, but has no say in its operations. However, many silent partners eventually want to have a say in how the business is run. Again, to ensure that this relationship works as planned, draw up a partnership agreement that specifies the terms of your partnership in detail.



3. Bring on angel investors. An angel investor is a wealthy private investor who gives start-up capital to new businesses and new business owners in exchange for equity in that business. Businesses with angel investors benefits from the angel investor's industry expertise, business contacts, and financial resources. Locating angel investors, however, can be difficult. You'll have to locate a high net worth individual who shares your passion for the business you are buying and its industry. Then, you'll have to convince them of your own management skill and your ability to give them a good return on their money.

Angel Investors can be located by visiting the Angel Capital Association's website.



4. Engage in equity crowdfunding. Equity crowdfunding, which involves selling small stakes in your business to a large number of small investors, is a relative newcomer in the world of business financing. While equity crowdfunding has been around for years, operating through sites like SeedInvest, it has recently become tightly regulated by the Securities and Exchange Commission (SEC). Equity crowdfunding can be an effective way to raise money, but only with the proper guidance, as following SEC guidelines can be complicated.



Method 4 Getting Seller Financing.



1. Consider the benefits and drawbacks of seller financing. Seller financing, also called owner financing, is a purchase arrangement in which you repay the sale price of the business directly to its previous owner over several years. For the buyer, this provides some flexibility in repaying the loan, such as negotiating a longer repayment period, a temporary reprieve from payments, or reducing the price in exchange for letting the owner keep some equity in the business. However, this type of arrangement is typically more expensive, with the owner charging a higher interest rate than the bank would charge.

Ideally, the buyer should negotiate an arrangement where all or a portion of the loan financed by the seller may be contingent upon the profits reached and payable over a limited term. This protects the buyer in case profits are not as high as expected.

Obtaining seller financing may give you more power in negotiating down the price of the business.

Doing so also gives the seller reason to help you out more in running and managing the business.



2. Ask the seller if they would consider seller financing. Start by asking the seller directly if they would consider seller financing. It may help if you explain to them that this will result in their getting more money over time, as they get to keep the interest on your loan (rather than the bank keeping it). If they agree, you can begin negotiating a contract.

If possible, avoid securing the seller with assets purchased. This gives you a cushion if additional financing is needed to get the business is running smoothly.



3. Negotiate a contract. Work with the seller to form the terms of sale. Start by offering to make a down payment with what you can gather on your own, say 10 to 20 percent of the sale price. Try to offer as large of a down payment as you can afford; this will only help you and save you money in the long run. Then discuss a repayment period and interest rate. Try to negotiate a longer repayment period and lower interest rate to make sure that you can afford the payments.

You may be able to agree on a large, balloon payment in a number of years. This will reduce your monthly payments. Then, you can get a bank loan or use your savings to cover the balloon payment.

Alternately, where a C corporation is involved in the purchase, issuing preferred stock may be a better option than debt for the buyer when repaying the balloon payment.



4. Have a lawyer review the contract. Ideally, you should have an attorney that specializes in business contracts draw up the contract. However, you can also have one review the contract to ensure that your interests are represented and that there are no surprises waiting for you in the wording of the contract. You may also want to have an accountant review the financials of the deal to make sure everything checks out.

The lawyer, and possibly an accountant, should confirm the validity of the financial statements, specifically the identity, value and location of assets and liabilities.



5. Finalize the deal. Once you've been assured that the contract is right for both you and the seller, close the deal and take control of the business. With seller financing, you'll likely be able to convince the previous owner to help you out with getting started as the manager of your new business.

November 22, 2019

How to Find Investors for a Small Business

How to Find Investors for a Small Business.

If you want to start a small business or expand an existing one, then you’ll need to find money. One option is to bring on investors. There are many potential investors out there. However, you need to identify which ones will invest in your business and then put together a compelling presentation. When you meet with investors, remember to answer questions with confidence.

Part  1 Identifying Potential Investors.
1. Ask small business groups. You might not know where to begin. It’s probably best to start close to home. Meet with other small business owners or stop into your local Chamber of Commerce. Ask if they know of investors for your business.
2. Contact the Small Business Administration (SBA). In the U.S., the Small Business Investment Company (SBIC) program helps small businesses find investors. Over $21 billion of capital has been channeled through this program. Each SBIC is privately owned. However, they are licensed and regulated by the SBA.
You can find the SBIC directory here: https://www.sba.gov/sbic/financing-your-small-business/directory-sbic-licensees.
For purposes of the SBIC program, a small business generally has a net worth of less than $18 million and net income of $6 million or less. Furthermore, some business are prohibited from participating in the program.
3. Find a local incubator or accelerator. These organizations help start-ups turn their ideas into a real business, and they provide funding as well. You can find an incubator or accelerator near you by using the National Business Incubation Association’s directory listing.
Generally, incubators help start-ups or new businesses, while accelerators help already-established businesses grow faster.
Incubators might not provide investments directly. However, they can help connect you to potential investors.
4. Look at online crowdfunding. You can reach investors worldwide by using an online crowdfunding site, such as Equity.net. These websites give you access to hundreds of investors who can help you finalize your business plan and grow your business.
5. Remember family and friends. People who know you might invest in your business, especially since they can see your drive and determination. Remember to approach them as you would any other investor.
Friends and family will want some return on their investment, just like other investors. However, you might be more flexible in what you can offer. For example, instead of making them part-owners, you might want to provide them with free goods or services in return.
You also should think about asking people you know for a loan instead of for an investment. With a loan, you don’t have to give up any ownership in your business. Also, if your business fails, you can wipe out a loan in bankruptcy.
6. Hire a business capital broker. These brokers have networks of potential investors that they can contact. You can find a business capital broker online or by talking to other businesses that might have used a broker.
7. Consider if venture capital is right for you. Venture capital is a term used to describe a variety of investors, including private equity firms, venture capital firms, and angel investors. Although different, they share similarities.
They take big risks for potential big financial rewards. Accordingly, venture capital usually invests in industries with large growth potential, such as technology or biomedicine. Very few businesses qualify for venture capital financing.
They are actively involved in your business. For example, they will probably demand a seat on your board in exchange for investment capital. However, they often are experienced in your industry and can help you grow.
They have a longer investment horizon than other forms of financing.
8. Find venture capital investors. Look online at websites such as Angel Capital Association, Angel Investment Network, and Funded.com. Investors use these sites to find businesses to invest in.
The Angel Capital Association has a directory listing accredited investors. You can search by region or state. Links are provided so that you can visit the investor’s website to learn more about them.

Part 2 Putting Together a Presentation.
1. Run the numbers. You need to know how much money you’re after. If you need a small amount, you might only seek out one investor. However, if you need a lot of capital, then you’ll need to know that as well. Calculate how much money you need for your small business.
Also consider how much of your equity you are willing to give up in return. Investors don’t give loans. Instead, they take a share of ownership in exchange for money. You’ll need to come up with something reasonable.
For example, if your business is worth $100,000 and you want $25,000, then you’ll need to give up around 25% of the business’ equity.
2. Update your business plan. Your investors will want to see your business plan, which you should have already created if you are an existing business. The plan will identify your market, competitors, and include financial projections for five years.
Update the financial information so that it is current.
You should also bulk up the executive summary to your plan. Investors often will skip other parts but focus on the summary, so spend extra time on it.
Make the business plan colorful and include graphics so that the information is easy to digest.
3. Research the investor. You need to know whether a potential investor will be interested in your business. Many investors focus on only certain industries, so you’ll save yourself time if you figure out ahead of time their focus.
Look online to check what businesses they have invested in.
Look at their LinkedIn profile to see if you know people in common. If so, ask whether the investor might be interested in your business.
4. Ask for a meeting. There’s no one way to reach out to an investor. If someone recommended the investor to you, then mention the recommender’s name in your email or when you call. Alternately, you can send your email to the recommender, and they can then forward it on to the investor.
In the body of your email, clearly communicate what you do.
Mention the age of your business. Are you a start-up? Have you been in business for ten years?
Identify any other investors you have worked with. For example, an investor might have given you start-up funds five years ago.
Provide dates when you are willing to meet. Try to be as flexible as possible.
Proofread your email so that it looks professional.
Attach something to show the investor your business. For example, you might create a short video that shows your products or services.
5. Know your story. Investors aren’t only investing in a business. They are also investing in a person—you. Accordingly, they’ll want to know stuff about you. You need to be able to explain the following.
What about your background has led you to this point?
How have you benefited from your previous business experience. Be prepared to point to specific achievements.
6. Prepare for common questions. You can’t anticipate in advance everything a potential investor will ask you. However, there are some common questions you should think through.
What has been the biggest mistake you’ve made in your business?
How are your competitors outperforming you? Why?
Is anything working against your business, e.g., new regulations, demographic changes, etc.?
Why are you seeking funding?
What are your long-term growth plans? How do you intend to get there?
7. Get help from a Small Business Development Center. Your nearest SBDC can help you pull together a business plan, find potential investors, and prepare for meeting with investors. Contact the nearest SBDC and schedule an appointment.
You can find the nearest office here: https://www.sba.gov/tools/local-assistance/sbdc.

Part 3 Meeting with Potential Investors.
1. Make a memorable presentation. You’ll probably make a presentation to investors, which can take many forms. For example, you might make a PowerPoint presentation or create a booklet for the investor to flip through. With other investors, you’ll simply sit and talk. Whatever form your presentation takes, it’s important not to simply repeat the contents of your business plan.
Yes, the investor wants to understand your financials, which is why you have a business plan handy for them to take and read. However, it doesn’t hurt to get creative.
Show the investor your product or service. If you are expanding a pastry business, have an assortment of pastries with you. If you provide a service, then you can create a short video that shows your business in action. You need to give the investor a concrete idea of what your business does.
Remember that pictures are more memorable than words. If you create a PowerPoint, don’t fill it up with text.
2. Be brief. Your presentation shouldn’t take more than 20 minutes. If you use a PowerPoint, then it shouldn’t have more than 15 slides. Practice your presentation until you it is the right length.
3. Ask for advice at the first meeting. Don’t dive right in and ask for money. A potential investor needs time to mull over your business idea before they can decide whether they want to invest. Accordingly, you should spend the first meeting tapping the investor’s business knowledge.
However, you can subtly work money into the discussion. For example, you can say in an offhand manner, “I’ve been thinking I’d need $130,000 to open a new store in that location, but I’d like to hear from you if there are hidden costs you’ve found in your experience…”
4. Be honest. An investor won’t cut a check until they perform due diligence. They’ll want to take a closer look at your business financials, and they will uncover any misrepresentation you make. Always be honest in your business plan and in your conversations with potential investors.
Admit when you don’t know an answer. An investor will appreciate your honesty.
If you lie to one investor, then they will talk to others in their community. You’ll get a bad name and not be able to find any investors.
5. Project confidence. Potential investors want to see that you have faith in your business. Avoid being arrogant, which shows that you are insecure. Instead, project quiet confidence in the following ways:
Listen. Insecure people chatter all the time and laugh awkwardly to fill up silence. Be prepared to listen.
Stand up straight. Put your shoulders back when you sit and stand.
Make eye contact when talking and listening to someone.
Avoid fidgeting.
6. Remember to ask the investor questions. Any investor will take an ownership stake in your business. Accordingly, you’ll need to vet them as well. Ask the following questions before agreeing to work with someone.
What other projects are they investing in? Check whether or not they are similar to your business, or whether they are in different industries.
When was their last investment? If the investor hasn’t been investing in a while, they may not be serious.
How do they plan to increase your company’s value?
What factors will you consider before deciding to invest?
How active do they want to be in the business? Does the investor want a seat on the board, handle day-to-day operations, etc.?
7. Follow up with the investor. After a first meeting, thank the investor by sending them an email. It’s unlikely that they’ll agree to invest after only one meeting, so you want to keep the doors of communication open. A short, professional "thank you" email can do the trick.
You can also keep the investor updated on the progress of your business. For example, if you were rolling out a new product, let them know how it is going.
8. Stay professional if rejected. It’s hard to tell why people choose not to invest in businesses. You might not have been a right fit, or they might have already chosen to invest in a similar business. Regardless of the reason, you can control how you respond. Stay professional and thank them for their time.
Remember that you might run into the investor later down the road, when they are more willing to invest in you. There’s no reason to burn bridges right now.
9. Keep trying. Avoid being discouraged if you don’t get many offers, or if every presentation you give results in a rejection. You probably haven’t found the right investor yet. Keep searching, because the perfect investor may still be out there.

FAQ.

Question : How can I attract customers for my trading business?
Answer : Advertisement is key. Go to your local paper and ask them if they would run an article on your business, or just buy advertising within the paper. You can also start a social media group and add friends and family to help spread the word. Creating a website, or having one created for you, is also ideal. this will show possible investors that you are dedicated to this and will also give them a chance to see what would be in it for them.
Question : What are basic rules to follow when speaking to an investor?
Answer : You must possess and demonstrate the following characteristics: Professionalism, manners, wisdom, soundness, honesty, commitment, passion and determination.
Question : I'm looking for an investor for my restaurant. Where can I find more information?
Answer : Seek out colleges and universities that have master chef programs. You will find that the same people who are donating money to these schools come from within social circles that are also interested in helping to establish finer restaurateurs.
Question : How can I find an investor for an international school I want to establish in Ghana?
Answer : For an international school, you could try fundraising websites and create a social media group to help spread awareness. People will donate money to worthy causes, if they are aware of them.
Question : How do I find someone to invest in a business I want to purchase?
Answer : It depends on the type of business you are purchasing. Look for trade associations local to you area and find out if they have regular meetings you might attend.
Question : How can I find a business partner?
Answer : You can put the word out on social media or by handing out flyers at pertinent businesses. Offer perks for your business partners.
Question : How can I find a foreign investor to distribute products in Myanmar?
Answer : I would start with contacting the Myanmar Embassy in Washington, D.C. They should be able to assist with your questions concerning international trade, as well as help to put you in contact with the people who do the licensing for international trade and distribution of goods and services.

April 07, 2020

How to Write a Proposal Letter

How to Write a Proposal Letter.

A proposal letter is a professional letter that states, in an abbreviated form, why an organization, institution, or company should support a professional venture of yours. You might write a proposal letter for a number of reasons—for example, to request a grant, a business loan, or that a publisher accept your book idea. There are general formats, details, and arguments you should make in each instance, although the specifics will vary based on the recipient’s requirements. In all cases, however, you must be succinct, informative, and persuasive.

Method 1 Writing a Grant Proposal Letter.
1. Review the eligibility guidelines so you can offer proof throughout the letter. Most public and private organizations that issue grants for research or other projects have a detailed list of eligibility requirements. You must meet these requirements to be eligible, and you must confirm to the organization that you meet these requirements.
Check the organization’s website or call or email them to get complete and up-to-date eligibility guidelines.
Instead of dedicating an entire paragraph to explaining how you meet each requirement, weave this information into the body of your letter as you write it. For instance, if the organization has certain requirements concerning the types of projects the money can be used for and separate requirements for how that money will be allotted, describe these issues in separate paragraphs instead of trying to cram all the information into one.
2. Introduce your organization to an appropriate degree in the first paragraph. If you are not in regular contact with the grant organization, you should introduce your organization in fairly substantial detail in the first body paragraph of your letter. For instance, provide the name of your organization, what it does, why it does it, and who benefits from your organization's work.
If you have had previous contact with the grant agency or organization, don’t rehash basic information the recipient already knows. Instead, mention any changes or developments your organization has made since you were last in contact.
3. Explain your need for the grant and its importance to your organization. Make this the central focus of the second body paragraph. Tell the recipient what your organization hopes to accomplish and what group or groups in society are the focus for your efforts. Also explain why your research, charitable effort, or venture is important and what sort of outcome you are expecting to have.
Balance optimism and realism in this section and throughout the letter. Don’t make outlandish claims like “ending poverty” with this grant. Instead, explain how the grant will help “alleviate food insecurity for at-risk children both before and after school hours.”
4. Provide a timeline and other practical details on how the grant will be used. In the third paragraph, include realistic content about the timeline your project will require, the locations you will operate in and/or impact, and similar information.
State when the project will begin and how long you expect it to run. Be as precise as possible: “If the grant is approved, we intend to operate the program from August 25, 2020 through August 24, 2021.”
Some grants are location-specific. If this is true of the grant you apply for, you will need to indicate where your organization is based, the geographic area that will be studied during your project, or the geographic area that will benefit from the project.
5. Mention how much the project will cost and how much grant money you are requesting. Be as specific as possible so that the grant organization can get an idea of how crucial its funding is. Provide this information in its own paragraph or integrated into the prior paragraph on grant use details.
Particularly if you are applying for a grant without a pre-determined funding amount, be sure to state precisely how much money you are requesting.
Be precise in your cost estimates and provide supporting documentation as enclosures in your application packet, as per the organization’s application instructions.
6. Include any additional information requested in the application instructions. The grant agency or organization may require additional information that should be included in your proposal letter, or it may require separate documents as enclosures in your packet. Refer to the application instructions carefully and frequently, and contact the organization whenever you have questions or need clarification.
Additional documents may include financial budgets, past financial records, and past records indicating the success of similar projects performed by your organization in the past.
Make sure your grant request isn’t delayed or even rejected because you failed to provide a required piece of information.

Method 2 Writing a Business Financing Proposal Letter.
1. Refer to any prior contact at the beginning of the letter. If your business is already established and has a previous relationship with the lender or funder you are contacting, be sure to mention that prior contact. This doesn’t guarantee success for your current request, of course, but it may strengthen your status as a “good bet.”
If you interacted with a specific contact at the company, mention that individual by name. For example: “Nearly seven years ago, I worked with Jane Goodson at your company to help secure the funding that got my business off the ground.”
2. Discuss the size, scope, and focus of your company. Include your mission statement and a short description of the products or services your company provides. To make your case for funding more convincing, also include details like the number of customers served, the number of employees, and information about any administrative boards.
Providing a brief summary of your business helps the funder get a better understanding of who you are, what you do, and why you are a good choice for funding.
Aim to spend 1 paragraph on this content, in most cases.
3. Pinpoint the amount of funding you need and why you need it. Take a paragraph to both identify precisely how much funding you are requesting and explain why you need financial help from the funder. Describe what, specifically, the funding will be used for.
For example: “The $50,000 loan we are requesting will enable us to expand production in our highest-profit product range and grow sales by an estimated 20% within 2 years.”
You may need to include budget data that spells out how funds have been used in the past and projections on how the funds will be used this time around. This additional data may need to be included as a separate attachment.
Regardless of how much information you include in the body of the letter itself, you should always state the total cost of the project and how much of that cost will be covered by the funder's support.
4. Explain how you will use the funding, specifically but succinctly. You need to provide enough information about how the provided funds will be used to make the prospective funder curious and excited by the prospect. Provide key highlights in a paragraph, mentioning specifics but not going into excessive detail.
This should only be a summary. With a full-scale proposal, this information can take pages. This information should take no more than a half page when writing a shorter proposal letter, however. Provide separate enclosures as needed.
5. Offer to provide additional details at the close of your letter. Since a proposal letter is shorter than a full proposal, make it clear that you are willing and able to provide additional details as requested. Do this instead of sending excessive amounts of information that has not been requested with your proposal letter.
For instance, you last sentences might read: “Should you need any further information, please feel free to contact me directly by phone or email. I would also be happy to meet with you at your offices.”
6. Include any necessary enclosures with your packet. Check over the application requirements again. If the prospective funder requires additional documentation along with your proposal letter, include it in the envelope as an enclosure. Note the enclosures in your proposal letter.
Possible documentation might include a list of board members, copies of your tax documents and financial documents, and resumes of key staff members.

Method 3 Writing a Book Proposal Letter.
1. Check the submission guidelines before starting the letter. Every publishing agency and publisher has its own set of submission guidelines. These can usually be found on the publisher's website—if not, call, email, or write to the company and request a copy of their guidelines before proceeding.
Submission guidelines outline the types of books a publisher or agent will accept, as well as the required format and content for the proposal letter.
2. Spend the first few paragraphs describing your book. Right from the start, you need to convince the agent or publisher that the book you want to submit will be successful in the marketplace. In the first paragraph, use around 300 words to write a brief but intriguing summary of your book. Write a second paragraph that describes the essentials of the book, such as genre, word count, and likely market.
If you’re writing fiction or creative non-fiction, outline your narrative and describe your main characters in the first or second paragraph.
State whether or not the book is finished at some point in these opening paragraphs. Note, however, that some publishers will not accept proposals for unfinished works.
3. Identify your expected target market and competitors. Use a paragraph to thoroughly describe the demographic your book is aimed at. If possible, provide provide statistics and make sure they address your target demographic in specific, rather than general, terms.
Perform a competitive analysis in this section. List a few main competitors to your book, explain how well these competitors do in the market, and describe why your book will offer something its competitors do not.
4. Provide biographical information, especially in relation to the book’s subject matter. Describe yourself and explain why you are the perfect person to write this book. Don’t fabricate or exaggerate details, but do put a positive spin on your personal bio.
Mention any writing experience and publishing experience you have.
Mention any experience you have with your book’s subject matter. For instance, if you’ve written a book about fashion and have experience as a fashion designer, include that in your letter.
5. Summarize your intended role in the marketing plan. Provide specific information about what your plans are concerning the promotion of your book once it gets published. Be specific, not general. Do not state what you are willing to do, but rather what you will do.
Instead of writing “I would be willing,” for example, go with “I will.”
Possible forms of marketing include professional blogs, book signings, and professional conferences.
6. Include a more detailed synopsis as a separate enclosure. You will usually need to include a 1-2 page synopsis that describes your book in fuller detail than your 300-word summary at the start of the proposal letter. Unless otherwise directed, include this as an enclosure, not as part of the main body of the letter.
Provide a full summary of the entire plot and purpose of your book. Include all the major details about the plot and significant sub-plots.
7. Enclose a sample table of contents and an extract, if requested. Some publishers expect you to send along a table of contents, an extract from the work, or both. Follow the specific submission guidelines provided by the publisher, and get clarification if needed.
If you do not yet have a table of contents, you may instead need to provide a brief summary of each chapter.
Some publishers and agents will request the first few pages or chapters of your book. Others may not specify which part of the book the extract needs to be pulled from. Regardless, the extract should be an example of your strongest writing.

Method 4 Formatting the Letter.
1. Start by placing your address at the top left of the letter. In the upper left corner of the letter, write your street address on the first line, then the remainder of your address (such as city, state, and ZIP code in the U.S.) on the second line. Left align the text (here and throughout the letter) and single space between lines.
You do not need to include your name or title in the return address, since this information is provided in the closing section.
Do not type out the return address at the top of the letter if you are using paper with a formal letterhead that already includes the address.
2. Include the current date below your address. Double-space after the return address and type the current date in "month-day-year" format in the U.S., or “day-month-year” in nations that typically use that format. The month should be spelled out, but the day and year should be represented by numerical values.[
For instance, write “October 8, 2019” (month-day-year) or “8 October 2019” (day-month-year).
If you are not using a return address because your paper has a formal letterhead, the date should be the first piece of information you add at the top left.
3. Type in the recipient's name, title, and address. Double-space after the date, then use a single-spaced line for each of the following: recipient name; recipient title (if applicable); recipient street address; recipient city, state, etc.
Alternatively, you can put the person’s name and title together on one line—for instance: “Mr. Thomas Jones, Director of Operations.”
Use the person’s personal title—Mr., Ms., Mrs., Dr., etc.—if you know their preference. It’s generally acceptable to assume “Mr.” for a male and “Ms.” for a female. However, you can instead choose to exclude the personal title and write “Thomas Jones” instead of “Mr. Thomas Jones.”
The entire block should be left-aligned and single-spaced.
It’s preferable to write to a specific individual at a company instead of writing a general letter to anyone who may read it.
4. Include an appropriate salutation to the recipient. Double-space after the recipient's address and type the salutation "Dear" followed by the recipient's personal title and last name. End the salutation with a colon, not a comma: “Dear Ms. Amy Watson:”
If you do not know the recipient's preferred personal title and prefer not to assume either “Mr.” or “Ms.”, skip the personal title and use the recipient's full name: “Dear Amy Watson:”
Double space after the salutation as well.
5. Write the body of your letter using single-spaced block paragraphs. The exact content and length of your proposal letter will of course vary depending on the type of proposal you’re writing. The format of the letter should remain the same for each type, though.
Single space and left justify each paragraph.
Do not indent the first line of your paragraphs.
Double space between paragraphs.
6. Use an appropriate closing and signature. Double-space after the final body paragraph and include a formal closing, followed by a comma. Hit the "Enter" key four times before typing your full name and personal title—this blank space is for your signature.
Capitalize only the first word of your formal closing—That is, “Thank you” instead of “Thank You.”
Common closing options include “Thank you,” “Sincerely,” “Regards,” “Best regards,” and “Best wishes.”
Add a comma after the formal closing.
7. Mention any enclosures below your signature and name and title line. If you send any enclosures with your proposal letter, like a resume with an employment proposal or financial information with a business proposal, indicate this by double-spacing after your typed name and title and typing "Enclosure” or “Enclosures.”
You also have the option of listing each document you are enclosing. Use the following format: “Enclosures: resume, writing sample, 3 letters of reference.”
8. Review the letter for spelling, grammar, and formatting errors. Run your finished letter through a spell-check program, but don't stop there. Read it out loud to check for any awkward phrasing or grammar errors. If possible, have someone else read through it as well, since they may spot errors that you've missed.
Don't let a silly spelling error or misplaced comma reduce the impact of an otherwise carefully-crafted letter. Proofreading is important!

FAQ.

Question : How do I write a proposal for a musical tour?
Answer : dentify the potential donors and outline your plans for the tour, including the bands involved, the venues where you will be playing, and an estimate of the upfront costs and potential profit. If this will be for charity, clearly identify the cause.
Question : How do I write a proposal letter to the ministry of safety, wanting to supply them with stop signs and police gear?
Answer : A proposal is generally understood to mean something the receiver has not yet thought of. "Dear city council, after reading your urban planning blueprints, I propose to plant more trees" rather than "I see you're looking for trees and I want to sell you some." Governments are typically bound by public tenders when they buy equipment, so if you want to sell signs and gear, you have to submit your offer when they issue a tender and hope yours is the best of all offers received.

Tips.
If someone else typed the letter for you, double space after the enclosures line and include their initials. For example, add “HU” if Hilary Underwood typed the letter for you.

April 07, 2020