Starting a business is very challenging and risky nowadays. According to research, 94% of start-ups fail in their first year. Most of the time, this is due to lack of funding. Money is the bloodline of any business. In today’s world, you need to be creative and think outside the box to raise start-up capital for your business.
Perhaps, you’re reading this article because you’re finding it hard to raise initial seed capital or an operating capital to grow your business. Well, luckily for you, we’ve got a lot of options out there for funding new start-ups, but finding and securing the cash will take careful study plus good negotiating skills, and, above all, a tireless commitment to launching or growing your business. To start with, I’ve listed out six ways to raise start-up capital for your small business.
- Raise the capital yourself.
- Ask family and friends for help.
- Get a small business loan.
- Get angel investors.
- Try crowdfunding as a funding option.
- Get venture capital for your business.
1. Raise the Start-Up Capital Yourself
This is termed bootstrapping. You fund your business yourself for the time being till you have more formal funding opportunities. There are so many ways to accomplish this, from savings accounts and zero interest credit cards to leveraging other personal assets. Putting your own money into your business shouldn’t be an issue except if you don’t trust and believe in your vision. The only thing with putting your own money is that your company growth rate will be slow. To increase growth rate, you’ll need to gather investments outside your pocket.
Bootstrapping won’t work and you won’t be able to take advantage of the opportunities in the market if you don’t add external funding to it. However, there are still a few ways to raise funds for your business yourself. Although these might not work for everyone, still, check them out.
- Product Pre-Sale. A lot of entrepreneurs usually overlook this method. It has proved highly effective over the years. You sell your products before you launch them. It’ll generate the financing you need for your business. Apple and Samsung do this well. You can pre-orders their products before the due launch date. Doing this will help you prepare ahead for the consumer demand and improve cash flow.
- Selling Assets. This might sound like a tough step to take but it can help you meet your short-term fund requirements. When you are through with the situation, you can again go back to get the assets.
- Credit Cards. They are always available and you have access to instant funding. If you are a new business and don’t have tons of expenses, you can use a credit card and keep paying the minimum payment. However, keep in mind that the interest rates and costs on the cards can build very quickly, and carrying that debt can be detrimental to a business owner’s credit.
2. Ask Family and Friends for Help
Asking for help from your family members and friends is a very popular and effective way to round up some initial capital for a business. Those closest to you are more likely than anyone to believe not only in your vision but your ability to make that vision a reality. The only effect with this method is that, if you fail, then you are potentially risking personal relationships.
To avoid this kind of issue, I suggest that you structure this type of funding as a high-interest loan for at least a year. Make sure you borrow just enough to launch the business into operations, build your website, or develop some additional pitch material if you want to go after big money. And as much as you will want to avoid racking up legal fees, it is imperative that all parties get sound legal advice. Not doing so can potentially cost you much more down the road.
3. Get Small Business Loans
Getting loans from banks can be very difficult sometimes. They are very strict. How then can you possibly use this medium? Well, Mike Kevitch said, for small businesses to get a loan from the bank, they’ll need a good business plan, a profitable projection, and definitely some of their own money in the business. You meet these requirements, then you’re good to go.
There are two kinds of financing that the bank provides for businesses. The first is working capital loan, and the other is funding. A working capital loan is a term used to describe a loan used by corporations to run daily working expenditures, and the bound is frequently definite by collateral seeking stocks and debtors. In a case where you don’t qualify for a bank loan, what do you do? There is still an option. Microfinance is basically access to financial services to those who would not have access to conventional banking services. It is increasingly becoming popular for those whose requirements are limited and credit ratings not favored by the bank.
4. Get Angel Investors
Angel investors are people with surplus cash and a keen interest to invest in upcoming startups. They also work in groups of links to jointly screen the offers before financing. They can also mentor or advice while giving you capital. You can achieve enormous success in raising money this way. The timing has to be right and then you have to leverage the right contacts.
In our experience, the “friends and family” route has really unlocked the doors to angel investment circles. A great amount of trust can be earned by giving your initial phase investor his or her money back plus interest. When you’re trying to get money from Angels or VC’s, always remember that they own a part of the business, and you have a responsibility to act in the company’s and their best interest. Know your business plan, be the see-through kind of person, back up your estimate with real forecasts, and build a relationship based on trust.
5. Try Crowdfunding as a Funding Option
Although this method is new, it has been gaining a lot of popularity lately. It’s like taking credit, pre-order, support or funds from more than one person at the same time. Let me make this clearer. A business owner will put up a detailed description of his business on a crowdfunding platform. He’ll state his business goals, his plans for making a profit, and also how much funding he wants and for what aims. Customers can then hear about the trade and give money if they like the idea. Those that want to give out their money will make pledges and probably give a donation. Anybody can donate money to helping a business that they actually have faith in.
The best thing about crowdfunding is that you can also generate interest while marketing the product alongside financing. It is also a boon if you are not sure if there will be any demand for the product you are occupied with. This method can cut out skilled stockholders and stockbrokers by putting money in the hands of the public. It can also fascinate venture-capitalist down the line if a company has a predominantly effective movement. Keep in mind that raising capital this way isn’t going to be easy at all. Crowdfunding is a competitive place to earn money, so unless your corporate is totally strong and can entice average consumers by means of mere description and few images online, Crowdfunding might not work for you.
6. Get Venture Capital for your Business
These capitals are professionally managed funds invested in companies that have huge potential. A venture capital investment may be suitable for small businesses that are outside the startup stage and already making profits. Fast-growing companies like Flipkart, Uber, and so on, with a withdrawal policy already in place can achieve enormous capitals that can be used to capitalize, link and grow their firm quickly. However, this method is not perfect. There are a few downsides to it. VCs have a little leash when it comes to firm reliability and often look to get their investment within 3-5 years.
It doesn’t matter what choice you make, chances are that you may do all of these at some point as your business grows. At the end of the day, you have a business to attend to and none of these matters unless it has your full attention. So, find a practical way out that also allows you to preserve jobs and focus on success.