Did you know that the most productive oil field in the world is right here in the USA? The Permian basin has reached a peak of 4.2 million barrels per day. Experts say it will continue to be productive for years to come.
This shows that homegrown oil and gas is a very viable business opportunity. It’s one of the many reasons that the US economy is booming right now.
You may have access to production oil or gas and are looking to develop it further. Or you may be wondering how to get into the oil business.
Where can you find the capital you need to start up your own oil or gas business? Check out our in-depth guide to raising capital to enter the oil business.
1. Self-Funding
After initial research, you may realize that you have the capital you need right at home. This may be in the form of assets or savings that you already have. While this might seem like the most painful way to find capital for a business, it has some distinct advantages.
Self-funding is the easiest way to provide capital to your business since the only person you need to convince is yourself. Further, you’re making a serious statement to future investors. You’re demonstrating that you have confidence in your production oil or gas and your ability to build a business around it.
By providing the initial capital yourself, you retain full control of the business. Even a single investor, such as an angel investor, will have some say in the direction of the company.
However, by funding the company yourself, the control of its direction and speed remains with you. You will also receive all of the benefits when profits roll in.
2. Crowdfunding
Crowdfunding takes your product and makes it available for investment to anyone who thinks it’s a worthwhile venture. This is very much in your favor. Oil — particularly U.S. oil — is one of the hottest commodities on the market there right now.
Ther are various types of crowdfunding available, including rewards or equity-based crowdfunding. This does more than simply provide start-up cash for your company. Receiving capital from multiple sources means that you can potentially receive a very high initial amount.
Since crowdfunding is a public offering, you will retain a full record of your crowdfunding history. This means that when pitching to larger investors in the future, you’ll be able to show them your investment history.
You’ll have a history of people who willingly invested in your company and received their compensation — something all potential investors look for.
3. Angel Investors
Angel investors have become a famous feature of prominent business TV shows over the last few years. But who are they?
In short, Angel investors are generally accredited individuals who have a net worth of $2 million or a yearly income of over $200,000. They use their wealth to select new businesses that have the potential to provide a high yield.
Often, Angel investors will limit their personal input to $1 million. However, Angel investors have been known to invest in groups to increase their overall offering.
Angel investors often work through angel investment companies. These companies sift through the many startups in search of an offer with real potential. Because of this, they are often not difficult to locate. Usually, social media or their personal consultation websites are the first places to look.
As a further advantage, investors may also provide business input. This may be especially helpful if they have experience in the oil or gas industry. Of course, you will need to agree where this input begins and ends to maintain control over your company.
Yet, if you can build a good professional relationship with your angel investor, they can be a vital source of business advice. They have personally invested in your business. It’s in their best interest to ensure that your business succeeds.
4. Friends and Family
You may be surprised to learn that friends and family are the second biggest source of business capital in the U.S. Your family will be aware of your employment or management history. They are likely aware of the potential of your gas or oil share and may even have helped you obtain it.
This is also one of the easiest ways to obtain capital, since there’s very little red-tape to delay proceedings.
However, like all sources of capital, there are potential negatives. Your family may be willing investors and ask a lower return than other investors. However, the price for this may be the input that they give. They may have little or no business experience or none at all in the oil or gas field.
Further, while your family may be willing investors, extra problems will arise if the business should falter. Relationships may be strained if you’re unable to quıckly resolve debts and other losses.
Often family and friends are the safety net that catches us after a business has suffered losses. However, if your family and friends are the initial investors, they may not be in a position to help later.
If all goes to plan, this can be one of the easiest and fastest ways to receive capital. Ensure that everything is documented and quickly look to apply for other forms of capital to make this work for you.
5. Taking a Bank Loan
Probably the most traditional method of obtaining start-up capital is by getting a bank loan. Bank loans have their distinct advantages.
Bank loans require collateral and a sound financial history and credit rating. However, bank loans are different from investments. The initial application will likely require you to submit a large amount of information, as the bank will want to ensure that you can return the loan. They will also scrupulously inspect your business plan to confirm that it’s sound.
However, despite this, bank loans and their conditions are generally less invasive than investors and leave you in control of your own business.
Ensure that you employ a professional to read the small print and clarify the conditions of the loan. Further, you will want to confirm that the interest rates are not prohibitory.
6. Start-Up Competitions
Applying for and winning a competition for new start-up businesses is not as crazy as it may sound. Thousands of businesses receive investment capital this way each year.
This is a low-risk option for new businesses, as there is little investment in time and money to enter these competitions. However, the benfits aren’t limited to a large cash reward.
Entering competitions provides immediate exposure to a rich number of investment companies that examine every entrant. Even the companies that do not win the competition will often be contacted by angel investors afterward. This underscores the need to take the competitions seriously and prepare a professional pitch.
Entering competitions is a win-win situation. You win cash by reaching first place, or you win advertising by pitching the potential of your business.
7. Venture Capital
The highest yielding and most difficult form of capital to get is venture capital. Venture capital is the name given to investors that an investment company provides to often fledgling start-up businesses. It’s considered risky to invest in a business at this stage, so the conditions that the company requires are often high.
Venture capitals generally invest large amounts, often a minimum of $1 million. Since venture capital companies invest so much, they’ll want convincing proof that the business will succeed and how much it will yield.
If you’re approaching venture capital companies, pitch in an effective and efficient manner. You will need to convince them of the long-term viability of your oil or gas field and your ability to produce from it.
You should employ the services of a professional to clarify the conditions of the investment and the degree of involvement the company will have.
8. Use Industry Contacts for Recommendations
If you’re an owner of production oil or a gas field, you’ll likely already have significant experience and contacts in the industry. Ask founders of companies like yours how they received their capital, and even whether they want to fund yours.
By doing this, you’re not only receiving unbiased up-to-date advice, but you’re also benefitting from their experience as a new oil or gas startup. You can learn how they overcame initial cash flow issues, source technologies, and other technical aspects of production.
9. Small Business Administration (SBA)
Although around for many years, the SBA is still a useful source of funding. Don’t let the “small” business tag put you off, they offer federally guaranteed loans of up to $5 million.
Further, you will get the capital you need without interference in your business plan. The conditions and interest on the loan will also likely be light. The purpose of the SBA is to stimulate the economy.
The input that a successful oil or gas industry can have on an economy is significant. The SBA will likely look positively on plans to develop it further.
How to Get Into the Oil Business and Much More
If, like many companies, you have access to production-ready oil or natural gas, don’t miss out on this opportunity. The political and social environment is heavily favoring home production. This is a big opportunity for oil and gas companies across North America.
If you would like to start an oil or gas company — or simply expand your current facilities — we’re here to help. We leverage our years of experience to help new companies get off the ground.
We know how to get into the oil business and how to stay there. We want to share our experience with you. Simply follow our blog or contact us to see how we can help you.
