Thinking about investing in a local business?
By John Hamilton
Thinking of investing in a local business? Ask tough questions and enlist partners .
A growing number of people in New Hampshire want to support local businesses.
I celebrate this. Local business owners, entrepreneurs and employees are economic heroes and deserve our support.
There are many ways to support a local business; some more effective than others.
Jenny Gilligan at Abigail's Bakery
The easiest way, of course, is to be a steady customer and encourage others to do the same, through conversation, offering a testimonial that the business can use in its marketing, or writing a review on one of the popular Web sites.
Other supporters want to do more, including provide capital that fuels additional business growth while keeping their dollars close to home. Clearly this is a powerful tool and is the reason why 'family and friends' are often enlisted to provide capital.
It is also complex enough to trip up well-intentioned, but inexperienced, investors.
If you are not related or close to the business owner, here are a few questions to consider when deciding whether and how to provide capital in a way that helps the business achieve its growth goals (these are some of the same factors the New Hampshire Community Loan Fund examines when deciding whether to make a business loan or investment):
- Is the business developmentally prepared to grow?
- Is additional capital what is most needed, or should the business owner focus on something more important or timely?
- What specifically will the capital accomplish?
- Does the owner have a clear understanding of the business's financial condition and which products or services contribute to its bottom line?
- What type of capital is needed debt, royalty or equity? How can it be structured so that the business can afford to pay it back without harming its future?
A resource for investors
If doing this "due diligence" sounds daunting, that is why citizens created the Community Loan Fund. We're a resource for N.H. people who want to invest in N.H. businesses. If you want to proceed but need help, feel free to call us. We can help you analyze the opportunity.
By speaking with capital providers who have already worked with the prospective business, you can learn and compare what answers they got to these same questions. They may also offer ideas on ways to structure your capital offer. By doing this, you tap into the lender's experience and may leverage more impact for the business.
It is also important to vet these questions with the business owner before deciding whether to provide capital. Otherwise, you may inadvertently cement a path that is not productive, or distract the owners from revising their business model or from finding a new way to differentiate themselves that their customers would value.
Sometimes the way to be most helpful is to say "no" to the current request, but let the business owner know what your concern is and that, when that concern is addressed, you'll take another look.
By caring enough to ask the tough questions and/or encouraging and enlisting other partners, you not only have the possibility of putting your capital to work for local businesses, you also reinforce their success.
John Hamilton is Vice President for Economic Opportunity at the New Hampshire Community Loan Fund.