Great! So you finally decided to become a business owner! However, do you have any idea of how to raise capital for a business? Read on!
We all know that starting a business is not for the faint of heart.
It requires hard work, patience, and perseverance.
Even when you think you have what it takes, there’s no guarantee that your venture will turn out a success.
It’s often said that for every 10 business startups, only 3 will make it to the 10th year mark.
While the chances for success may seem slim, business leaders and wide-eyed entrepreneurs worldwide still take the plunge.
Why? Because as the old saying goes, “Nothing ventured, nothing gained.”
You’ll never know if your business idea would be one of the lucky 3 if you don’t try.
That said, businesses aren’t built on ideas alone.
You’ll need a team of talented people to help you turn that idea into a reality.
You also need office space with office equipment, a company website to generate business online, and enough cash to cover your overhead.
In other words, you need money.
In other to get people to invest in your business, you’ll need to convince them that it would be worthwhile.
To do this you’ll need to deliver a great pitch.
Not many new business owners have an idea of how to raise capital for a business.
Whatever your industry or business model is, you need funding to get your business off the ground.
Getting new business funding may be the single, most challenging thing you will ever do for your new business, but it can also be the most rewarding.
The good news is, there are plenty of ways to raise money for a business.
You just need to find allies who can help you build your business fund.
6 Ways to Raise Business Capital
1. Raise Business Capital Through Business Grants
If you’ve been doing research on how to raise capital for a business, you’ve probably already read tons of articles about traditional sources of capital like business grants.
Business grants are often given by government agencies, local business partners, and even certain charities, to business start-ups who show great potential in a specific niche.
So, how do you get grants for your startup business?
The first thing you need to do is look for a grant program that you’re qualified to apply for.
Eligibility can be based on your location, race, business niche, and business model.
Once you’ve found a grant program that you’re eligible for, you need to complete your application and get ready for the review process.
Make sure that you have a well-prepared business plan that will show potential investors how you intend to put the grant into use.
It is one sure way of how to raise capital for a business.
–Small business grants are technically free money since you don’t need to repay them.
-Online companies and bootstrapped businesses can benefit greatly from business grants.
-There are many institutions that offer grants to deserving businesses.
-There are also tons of free information online that can help you win a business grant.
–Business grants are not exactly easy to get.
The process can be time-consuming and most institutions require an insane amount of paperwork.
–Since you’ll be asking an institution for free money, you need to justify your purpose.
You’re basically entering a contest where you need to compete with others.
You need to show potential investors that you have the best business idea out of the lot.
-With hundreds of thousands of entrepreneurs out there looking for how to raise capital for a business, expect the competition to get tough.
2. Raise Business Capital Through Bank Loans
If funding a new business with a grant doesn’t appeal to you, then you might be better off getting a bank loan instead.
This is one of the more popular and more practical ways on how to raise capital for a business.
Especially, since most banks offer this as a service to business owners.
Business owners with existing companies need only a few documents to show that they’re creditworthy.
However, startup business owners might have to rely on their own personal credit history to get a bank loan.
So, before you apply for a loan, make sure that your credit score and your business bank accounts are in order.
-You don’t have to be accountable to the bank on how you plan to spend the money.
Bank personnel won’t get involved in any aspect of your business.
-You’ll know exactly how much you need to pay in your monthly payments.
There’s no second-guessing the terms once you’ve signed the loan agreement.
-While you’re paying off your business loan, you’re also building your business credit with the bank.
Over time, the bank will see you as a good client and offer you other loans with preferential rates.
–You need to prove that your business has the capacity to pay off the loan.
This could involve a lengthy paperwork process.
–You might have to wait a few weeks at a time to know whether your loan is approved or not.
If it’s your first time applying for a loan, expect it to be a long wait.
–Most banks require collateral or a strong credit score before they can give you funding.
3. Raise Business Capital Through Angel Investors
Angel investors come in all shapes and forms.
Some help small startups by providing capital in exchange for owner equity, while others work through investor pools.
They are another great source of how to raise capital for a business.
Angel investors usually like to work anonymously via the internet so it’s no wonder that most of them invest heavily in tech products.
Want to know how to get investors interested in your business?
First, you need to meet them where they are.
These days, you can meet angel investors just by searching online or attending conventions.
You can also check out online platforms that help connect angel investors with aspiring entrepreneurs.
Next, you need to have a great business pitch.
Angel investors are usually very busy people so you need to be prepared with all the materials you need to convince them that your business is worth investing in.
-You don’t just get extra capital for business, you also get mentoring from your angel investors.
Plus, their contacts and network can be invaluable.
-Angel investors are usually risk takers so it won’t be too hard to convince them to invest in your idea.
You just need to share your passion behind your vision and if they believe in it the same way you do, you can expect support.
–The money you’ll get from an angel investor is usually not a loan.
You can work out the terms with them once the venture actually succeeds.
Usually, angel investors would ask to have a stake in the company.
–Finding an investor in a competitive niche can be very daunting.
With so many other businesses trying to get support from angel investors, you might find that your own business idea isn’t unique after all.
-Some angel investors will push you very hard to succeed and set high expectations.
After all, most of them started out where you are right now.
If they can do it, they think that others can too as well.
You need to be able to handle the pressure.
-Since angel investors are also in the business of making money, they’ll want to see a payoff soon, especially if they’ve worked with the same business model as yours.
-Once you allow angel investors into your business, you won’t be the only one in total control.
Angel investors expect to have decision making powers in the business.
-You’ll need to be accountable and explain to your angel investors your reasons for making certain decisions.
4. Raise Business Capital Through Family and Friends
Asking family and friends for business capital may seem like your last option, but hey, it doesn’t hurt to ask.
It is another good source of how to raise capital for a business.
Sure, your parents or siblings may not understand the nitty-gritty of your business.
However, if you can explain it to them in simple terms, they might just surprise you with some extra capital.
When you’ve finally gathered enough courage to ask those closest to you for some help, make your pitch.
Present your business plan as you would with a potential business investor – complete with business goals, statistics, and a workable time frame.
Go the extra mile to show them your professional side.
Just because you share childhood memories with your business investor doesn’t mean that you should skip the presentation.
-You get friendlier terms (low rates, delayed payment scheme etc.) from the bank of family and friends than you would from a financing company or a bank.
-You’re not just getting easy access to available capital, you’re also getting moral support from family and friends who want nothing else but to see you succeed.
-It gives you the opportunity to build an empire with people that you trust.
-Some family members might not be very supportive of your business plan.
So finding an investor inside the family circle may be a bit more difficult than you think.
-Pitching to friends can also be tricky since you’ll be putting the friendship at risk if things don’t work out as planned.
-Mixing business and pleasure can complicate your relationship with the people closest to you.
Before you accept a loan from a friend or family member, make sure to set up defined and clear terms for repayment.
5. Raise Business Capital Through Crowd-Sourcing Websites
Ever since the Kickstarter movement took the world by storm back in 2009, countless business ideas have taken off, thanks to ‘the crowd’.
It contributed greatly to showing entrepreneurs another way on how to raise capital for a business.
The great thing about crowdsourcing websites is that they can help you get funding even if your product is still in the design stage.
You just need a prototype for a clever idea that you have and you can start raising capital for your business.
Since a majority of the success stories on these crowdsourcing websites are home gadgets and online startups, you need to have an end product to get people to invest in your business idea.
Services may be harder to sell on this platform.
But whatever you’re trying to get funding for, make sure that you explain your business idea clearly in your pitch.
It’s all about highlighting the benefits if you want the crowd to invest in your idea.
-It’s pretty easy to get your idea out there.
You just need to set up an account with a crowdfunding platform of your choice.
-There’s plenty of money to go around.
It’s estimated that by 2025, more than $93 billion USD will have been invested in crowdfunding platforms.
-There’s always room for a small business to enter the crowdfunding arena.
-There’s a lot of work involved in creating a successful crowdfunding campaign.
You need to continuously find ways to differentiate your business idea from the competition even during the development stage.
–Once you put your idea out there, you’re more vulnerable to attacks from competitors.
Others may copy your business idea with extra added value.
-You’re accountable to everyone backing you up. This means, you’re not just answering to one investor, but hundreds!
6. Raise Business Capital Through Bootstrapping
Of course, if you have extra savings lying around, you can use that as capital for business.
That is one more way on how to raise capital for a business.
Many entrepreneurs started out by scraping together personal funds from their savings accounts and turning that into business bank accounts.
Using your own money is a great way to increase available capital for your business. But it can also put your own financial stability at risk.
If you’re taking this route, it’s crucial that you plan all your expenses down to the smallest detail.
The fact that you only have so much money to work with should motivate you to make every cent count.
Don’t let limited funding stop you from starting a business.
Just think of it as another way to get even more creative in your business operations.
-You’re only accountable to yourself.
As the primary investor, the only business decisions that matter is your own.
-With no stakeholders to satisfy, there’s no pressure to scale your business in a short amount of time.
-You have full creative control over the products that your business is developing.
-With limited funding, you might have a hard time getting the best people for your team.
-The lack of investors can also hurt the credibility of your business.
-It will take some time before you can enjoy the fruits of your labor.
5 Winning Tips For Funding a New Business
One thing that you need to remember regarding how to raise capital for a business, is this: Fundraising is only one part of your business model.
It’s NOT the business model per se.
Instead of looking at it as the ultimate goal, look at it as a tool that will help you achieve business success.
Having different sources of capital can help you bring your business’ vision to life.
In the end, it’s not how much business fund you have that matters, but what you do with that money.
With that said, here are 5 winning tips to include in raising capital for a business.
1. Collect Data
All successful businesses start from a great idea.
But you know what’s better than a great idea?
A great idea that’s backed by data.
Collecting data is important because it helps you see exactly what you’re up against.
When you know the figures that affect your business, like the number of customers you have or how long it takes to close a sale, it becomes possible for you to plan for and measure your business’s growth.
2. Have a Target Amount
When it comes to raising business capital, many entrepreneurs eyeball their target amount.
The danger of this is that there’s a higher chance that you won’t be able to make ends meet if the funds you’ve raised proves to be insufficient.
Instead of aiming for a ballpark figure, set a target amount to take your business to the next level.
Do your research so that you know just how much money your business needs to generate profit.
3. Choose Your Allies Wisely
Building a business empire involves forging relationships with people.
As soon as you receive money from an angel investor or a crowdfunding contributor, you’re already in a business relationship with them.
This is why it’s important that you choose your allies wisely.
It’s just like choosing your business partners.
You need to make sure that you’re all on the same page so that you don’t end up falling short on their expectations.
4. Cast Your Vision
Balancing short-term and long-term visions for your business can be tricky, especially when you have investors you need to answer to.
While it’s tempting to oversell your business idea to convince people that it’s worth putting money on, you still need to be realistic.
Don’t just sell the big picture, but also show the strategy you’ve developed to help achieve your goals.
Investors need to see that a business can succeed in the short term with long-term potential before they can back it.
How to Raise Capital for a Business Infographic
5. Develop a Company That You Can Be Proud Of
When an investor gives you new business funding, they’re not just investing in the product, they’re also investing in the company’s leadership and its people.
They know that their returns don’t just depend on how well the product performs, but also on how you and your company are working behind the scenes in order to sell that product.
This is why you also need to develop a company with a team that has all the values that you can be proud of.
If you believe in your team’s capacity to take your business to the next level, investors will feel more confident about investing in you.
Good Luck in raising capital for your business.
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