How to raise capital for business is a topic that has been written about on many platforms, and it almost always means loans! Loans! Loans! Big loans, small loans, easy loans and tough loans.
Admittedly, loans are sometimes a necessary evil. Personally, I don’t like loans. And I strongly advocate against taking short-term business loans. But I equally admit that watching your idea die because you couldn’t finance it is definitely worse than taking a loan.
So, are you about to start or expand your business, but somehow you are low on funds? Here are five ways you can raise capital:
Use your personal savings and assets.
You will have to ask yourself if you really believe in your idea and your business. If you really do, then you won’t have a problem investing your personal savings in it. If your drive is strong enough and your research and feasibility studies check out then you already have 60 percent of what you need to succeed.
Using your Personal savings and assets may involve dredging up every loose penny. It could involve selling assets that are valuable if you can afford to do without them at the time. It is not going to be easy, I know. But let’s face it, business is tough and ideas are born of sacrifice.
In most cases, you will need to be prepared to provide a detailed explanation of how much money you need and for what purposes. You equally need to be able to explain how you intend to repay the loan.
The bank will also most likely require recent personal income tax returns, bank statements, credit history and other personal financial information. They will most likely demand some sort of collateral to secure the loan, usually any machinery, real estate or vehicle purchased by the loan.
Another potent tool to get a loan may be to apply for a title loan and get a loan against an existing vehicle you already possess.
However, banks usually have a minimum lending amount. And if you do not intend to borrow up to the minimum, you might need to try other financial institutions or try out other sources of financing like Small Business Administration (SBA) loans or a business line of credit.
Use credit cards.
You can use your business credit card (or personal credit card) to pay for your startup costs, but this has to be done with caution. You don’t want to borrow money at a 20 percent interest rate or you may be paying off that debt for a long time. The loan is unsecured and interest rates have a tendency to be on the high side. Your profit projections can help you decide.
The rates are very important and if it is possible to get a card with a zero percent introductory interest rate, you can take advantage of it and make sure (or at least try) you pay back before the rate goes up.
Contact angel investors.
As their names imply Angel Investors are often wealthy working class or rich and retired people looking for places to invest. Each country has a set of laws governing their activities. In the US for instance, their roles are guided by The Securities and Exchange Commission.
Family and friends.
It’s quite risky and unadvisable to mix business with family. I know from experience that loans from family and friends can ruin beautiful relationships. But in the regrettable event that your business fails or has an issue that stalls profitability, you would rather be explaining that to a brother than to a stranger.
As an addition, here are three things not to do while attempting to launch a lean startup:
Don’t guess (do research).
A lot of people cannot finance their startups because they have an estimated capital projection that is way beyond their reach. Proper research into set up costs for a new business in your industry will help you know the cheaper and worthwhile alternatives. It will prevent you from underestimating too.
Proper research also makes it easier to attract investment if it still becomes necessary to look outside for funds.
Don’t prioritize appearances (budget).
I perfectly understand the need to start big. But you need to know that Bill Gates began from a warehouse before he got to the penthouse.
Business is an organism, it grows. For many startups struggling for startup capital, a lot of things can be cut out from the list. Among other things, you should have an idea of how much you spend each month, and learn the art of budgeting.
Don’t think aesthetics or convenience (think utility).
Before you go into debt yet again, take a minute and ask yourself if you really need to. I mean these things will come if you play your cards right otherwise they don’t matter anyway.
For instance, you may not really need a brand new mahogany desk if the one in your garage will do the job just as effectively.
Business is tough work and raising capital is even tougher, but like I said, it’s like an organism — it grows. With diligence and drive you can get to the penthouse, too.