“How to raise capital” is the biggest concern for every start-up enterprise. Every start-up requires sizeable investment before it starts to deliver profits that in turn are utilized for the growth of a business. You need funds at every step of your business development. The challenge of landing that capital to grow a company can be exhilarating. But as exciting as the money search may be, it is equally threatening. Funding can come from personal resources, bank loans, venture capital, crowdfunding e.t.c. Here are some ways to raise capital for your startup business:
1) Bootstrapping your startup business:
At the beginning of your journey, it’s very likely nobody will believe in your business ideas as much as you do. That’s why you will have to put your money where your mouth is and start with what you have. Self-funding, also known as bootstrapping, is an effective way of startup financing, especially when you are just starting your business. First-time entrepreneurs often have trouble getting funding without first showing some traction and a plan for potential success.
Self-funding or bootstrapping should be considered as a first funding option because of its advantages. When you have your own money, you are tied to the business. At a later stage, investors consider this as a good point. But this is suitable only if the initial requirement is small. Some businesses need money right from the day-1 and for such businesses, bootstrapping may not be a good option.
2) Crowdfunding As A Funding Option:
Crowdfunding is one of the newer ways of funding a startup that has been gaining lot of popularity lately. It’s like taking a loan, pre-order, contribution or investment from more than one person at the same time.
If you have strong convictions about an idea, use the power of the internet to raise the funds you need.
Crowdfunding sites like GoFundMe have become increasingly popular with inventors, entrepreneurs, and the general public in recent years. They’re easy to set up, and if you can communicate your passion in your fundraiser description, you may be able to generate support from people all over the world.
This is how crowdfunding works – An entrepreneur will put up a detailed description of his business on a crowdfunding platform. He will mention the goals of his business, plans for making a profit, how much funding he needs and for what reasons, etc. and then consumers can read about the business and give money if they like the idea. Those giving money will make online pledges with the promise of pre-buying the product or giving a donation. Anyone can contribute money toward helping a business that they really believe in.
3) Angel Investors
Angel investors are often successful entrepreneurs, well-paid senior employees, or high net-worth individuals who are drawn to the opportunity of high returns that come with making high-risk investments. They are individuals with surplus cash and a keen interest to invest in upcoming startups. They also work in groups of networks to collectively screen the proposals before investing. They can also offer mentoring or advice alongside capital.
Angel investors have helped to start up many prominent companies, including Google, Yahoo and Alibaba. This alternative form of investing generally occurs in a company’s early stages of growth, with investors expecting up to 30% equity. They prefer to take more risks in investment for higher returns.
4) Microloans or Small Business Administration (SBA)
Many people don’t know this, but there are several government schemes, initiatives, and organisations that provide grants, subsidies, and low-interest loans for all kinds of businesses. These funds are typically used by governments to stimulate and encourage entrepreneurship, investment, innovation, research, and economic growth in a particular industry or geographical area.
There are numerous microloan options for those looking for ways to raise money for business growth or expansion. Loans remain a core option for businesses because they usually come with fewer strings attached, shorter payment periods, and in some cases, medium to low-interest rates.
5) Purchase order financing
Purchase order financing is perfect for businesses that have large product orders coming in regularly but not enough cash to cover the production of products until the payment from the customer comes through. How it works is that a purchase order financing company will pay your supplier the cost to produce the product. When the product is made and shipped to your customer, your business then invoices the customer and receives payment. That payment is then used to pay back the purchase order financing company. While it’s not the most affordable way for a business to borrow money, it is a viable option for those who aren’t able to qualify for cheaper financing to fulfil an order.
Finally, It’s good to know that there are options that you can explore if you are in need of money to get your business moving forward. Make sure to agree on what form the funding will take. They could be a loan or equity in your company. If the money is a loan, agree to a repayment plan and use a P2P lending website to document everything and manage the loan. With venture capital, business loan, crowdfunding, or money from your own pockets, you can be on your way to success and financial stability.