When thinking about starting your business, you may be faced with the question of “how will I raise capital?” – because entrepreneurship has become increasingly popular, you, as a small business owner is forced to think out-of-the-box when it comes to financing your business.
Even though small businesses have been the driver of job creation, the expenses that come with owning a business requires capital, which in many cases is hard to come by.
Many times, you will have to depend on more than one source of capital before your company has reached a certain growth to attract angel investors. Thus, whether you are a start-up or a small business it is important to remain flexible and positive in your efforts to gain capital for your company to grow.
We understand it is tough out there, thus we have come up with a few solutions to your capital problems. Hopefully, these will be able to kickstart your dreams:
Define your niche
This is especially important when reaching out to investors as you will be able to research investors that cater to your line of business. There is no point in reaching out to all investors that have absolutely no relation to your industry. This will simply make you seem ill-prepared.
This is also known as self-funding. We always suggest that before quitting your current job, save! Save enough monies to help sustain your dream of becoming an entrepreneur until funding opportunities arise. Believing in your vision is motivation enough to invest your money into your business. Investors look at this as having a real passion for what you are doing, in all making them feel a lot more comfortable with someone who is a risk taker who has their eye on profitability.
Your Loved ones
Yes, we know the phrase, ‘don’t do business with your family,’ however, those closest to you are more likely to believe in your vision and your ability to make that vision a reality. If a deal goes south, this could tarnish a relationship, however, we suggest you draw up strict terms that the loan will be paid off with interest. Weirdly enough, funding from family and friends is quite popular. We would suggest borrowing just enough to set up the operations of the company – the website, flyers, and any other marketing and pitch material that may assist you when you apply for funding from the “big fish”. Before signing any documents with family and friends, all parties should consider seeking legal advice.
Small business loans
This may not be an easy option if you do not already have a credit record, however, if you have a good business plan, profitable projections and some of your own money, banks see you more as an asset than a liability, and are more willing to grant a business loan. Even though this type of capital search is very time consuming, unlike many other capital investments, you will not be giving away any rights or shares in your business.
As an entrepreneur, networking is probably the most important thing you will need to continuously do. Leveraging the right contacts can open many doors for your business, however, you need to be completely sure about the investor when choosing an angel investor. Angel investors will own a portion of your business, thus you need to make sure you pick the correct candidate for this position, as they will be your financial partner in the long run. Always make sure you build a trusting relationship, and that both parties are transparent.
Even though this may be the most difficult way to raise capital, this is also a great idea. Venture capitalists have very strict terms for their investments, however, if you can come up with a formidable business plan and successfully pass the requirements they set out for you, venture capitals are great backers, as they provide you with sound business advice to make sure your business grows.
Remember, whether you are choosing one of the above-mentioned capital investments or multiple, this will work towards growing your small business. In order to keep your business afloat, you need to find a viable funding solution that fits your business needs – focusing on proper operations and profitability.