A business idea is commendable, but the daunting task usually comes in actualizing the concept. No matter how unique, enough capital is needed to make it a reality. Indeed, many entrepreneurial ideas fail to come to fruition due to financial constraints. Thus, having a head start in financing your business is critical.
Start by calculating the capital requirements to purchase the requisite equipment, acquire licenses and permits, pay workers for the first few months, and rent premises. Besides, project how much revenue you’re likely to generate in the leading months before you break even and start operating profitably. It’ll help you know the total money needed to kickstart your venture.
After all the groundwork, you can now start raising cash. There are numerous possible options for acquiring funds. Below are seven ways you can raise startup capital:
Many people have been able to get money for their startups through crowdfunding. It typically involves contributions from a large number of people. It’s pretty easy nowadays, given the abundance of crowdfunding sites. Some sites offer advice on how you can register your business without registering transactions. It’s beneficial for your small business because you can raise capital without worrying about filing a lot of paperwork, as is typical with government regulations.
For instance, with Rule 506 (b), you can include unaccredited investors in your proposal, giving you a wide range of prospective investors, which is why 506b is ideal for crowdfunding. On top of this, you don’t need to verify its investors. You can also get expert advice when you share your creative ideas. The limitation you may face with crowdfunding is the probability of missing funds because someone may have a similar concept to yours.
2) Venture Capitalists
A venture capitalist can give you the money you need and offer you some guidance. On top of this, they provide network connections and prospective customers. They also expect to be involved in the daily running of your business. Obtaining funds isn’t simple since they want to put their money into feasible opportunities with the possibility of higher potential growth.
3) Angel Investors
Angel investors are people with large amounts of money ready to invest in promising business ideas. So, put your business idea out there so an intrigued angel investor can fund your business.
An advantage is that they’re prepared to suffer the risks your venture will likely face as long as the anticipated profit pays off. The only limitation is maybe they won’t give considerable capital if that’s what you’re anticipating.
4) Bank Loans
Traditional funding channels like bank loans are timeless options, and you could also try them. Banks can lend you money if your business plans look promising. They’d want to be sure of your ability to repay their money. In most cases, their rates are usually favorable. However, obtaining money depends on how good your credit score is.
Bootstrapping involves using your savings to facilitate your business while keeping operations as lean as possible and funding the venture continuously through the sales made. Ideally, you don’t inject outside capital into the business. It’s an ingenious way of supporting your business, and the following advantages usually accompany it:
- Getting total ownership of your business
- Making decisions about your enterprise without consulting anyone
- There’s little risk of debt
- Enabling you to focus on your product or service
- There’s no bureaucracy involved in receiving money.
The only shortcoming with this type of funding is that the money can only finance a small enterprise, not a large one. Likewise, the chances of exponential growth and survival are minimal because of the snail-paced capital injection. You may have to put in a lot of hard work and work many hours weekly to realize growth. However, it’s the quickest way to get your startup up and running.
Peer-to-peer (P2P) is another alternative way you can raise startup capital. It allows you to get loans from other individuals without the need to go through a bank. You can get information on possible P2P lenders from your friends, business network, or online search.
However, note that P2P lenders also may have interest rates, terms, and conditions. Nevertheless, they might be better than conventional institutions like banks because the application process is simple since there’s little to zero paperwork. Moreover, their rates are also usually low, and they may not base their decision to lend you money on your credit score.
7) Government Grants
The government may have incentive programs for particular groups of citizens looking to launch their businesses, for instance, youths, widows, people from marginalized areas, or differently-abled people. If you fall under any of these categories, you’d want to be on the lookout for government grants. You must submit a riveting business plan to be approved by the grant committee. However, you must be ready to wait since it usually takes time before the funds can reach you, given the typical government protocols.
Raising capital for your business requires you to take your time and select your funding options carefully. You don’t want to end up with unfavorable terms and conditions or extremely high repayment rates if the venture suffers a loss. So, consider each of the options above, weigh their pros and cons, and pick the most manageable one.