The most difficult task for any entrepreneur, who wants to start his or her own business, is to raise capital. Arranging money for your business brainchild requires determination and patience. While many options remain available like short-term business loans, not everyone meets the eligibility criteria of lenders. Therefore, it is of prime importance to always have a business plan to show your investors or lenders when you need capital. A business plan includes all the necessary business activities, finances, and everything related to its operations in a summarized way.
You are not the only one looking to finance your small business. An estimated 73% of small businesses look for some sort of financing to help their cause. Not every investor or lender will finance your business by looking at your business plan. You can use certain other ways for small business capital financing. Let’s take a look at a few of them below.
We assume you plan to run your business in an industry that does not require too much capital. It could be any manufacturing or transportation business. You can easily fund your business in an easy way and it might prove feasible for you. For instance, if you do not have enough savings that can act as capital, you can always have a 0% markup or low-interest APR credit card. The advantage here is that you can borrow a certain amount for a period without any interest.
You might think that funding your small business has risks and it does have to face many of them during its lifespan. The point to consider here is the potential associated with risks if your business is successful. If you believe that the business has potential and follow your vision, you will never accept failure and willingly invest your own money in the venture. Another point here is that investors feel easy to collaborate with you if they see you have invested your money in it.
Many crowdfunding success stories are present on the internet and with a little creativity, you can be one of them. You need to have the right product along with a strong pitch to make it into that elite list. Crowdfunding activities enable you to meet like-minded people that share similar interests. These people normally do not engage easily so such meetup remains a central point for them. The advantage here is that you can find out which trends are trending for now and which are going to stay. It gives you an idea about making improvements to your products or services. Ultimately, crowdfunding leads you to raise money for your business by showing your product, the need it covers, and why you need support. These are the basic points of discussion in a crowdfunding campaign.
Technological advancements have introduced new ways of raising capital for businesses. However, traditional financing still remains the primary funding option. Almost 75% of small businesses still rely on business loans, credit cards, and credit lines. Generally, banks and financial institutions offer loans to small businesses that fit their specifications. To get your application approved, you need to meet some requirements like:
These requirements may differ depending on the preferences of the lenders. In case, you do not qualify for the term loan, other options, however more expensive, are still available. You can opt for invoice financing if you have outstanding invoices with your clients. In addition, you can apply for an equipment loan to purchase business-related equipment and machinery. It all depends upon the necessity you have for your business.
Complete all your necessary documentation before applying for the loan. All paperwork needs consideration along with personal information in some cases.
If you have family members and friends who trust your business ideology, you can always ask them to provide the much-needed financial injection. Studies suggest that over 5% of US citizens invest in the business of someone they know. The key here is to narrow down those people that believe in you and have an understanding of the business. Be realistic about the needed amount and demonstrate a passion for the business. Carry out due diligence by having a plan for another venture and start working towards it too. Show your passion and interest in what you do so that they have every reason to trust you with their money.
Finally, make an agreement on the type of funding you seek. Determine if it is equity or loan financing. In case it is a loan, be sure to manage the repayments.
Angel investors are the people whose net worth exceeds $1 million. Alternatively, they have an annual income of more than $200,000. These people typically operate alone or in collaboration to form a fund. Angel investors remain a great source of investment for your business. You need to grab their attention by having a great pitch and a proper plan. Finding such angel investors is hard but many resources do exist. You need to keep digging until you find one that can help you out.
Venture capitals generally invest in more mature businesses than angel investors do. These venture capitals want to have more say in the everyday management of a business. Since venture capitals have the responsibility to generate returns for the firm, their focus is towards scalable and cash flow positive businesses with proven products or services. If you meet their requirements, you can apply for their investment. However, it is not as easy as it seems but many small businesses have arranged funds through venture capitals.
Your pitch is the main thing that can get you the attention you need. You should be able to convey the reason and convince them to invest in your business. Show the potential for the business and give them what they want to hear: “Guaranteed Profits”. The three-step process in this aspect is:
The Final Word
The key to raising capital for your business is to present your pitch strongly. The more aggressive and progressive you are, your chances of acquiring the investment would increase. Take all the available investment options and narrow down to the ones you feel most comfortable with.