How to Raise Capital for a Small Business
One of the most difficult tasks, for any entrepreneur that wants to start up their very own small business, is to raise capital for it. Simply put, capital is the amount of money the business has available to spend on various business activities. Raising capital is never an easy task and often requires a lot of determination and patience.
There are a number of ways that an entrepreneur can raise capital for their small business, however, before using any capital collection methods, always remember to have a business plan to show to your investors. A business plan simply states the nature of the business, the objective, the mission statement, the business goals, costs, expenses, staff and everything business related.
Below are a few ways that a small business owner could raise capital for their business. Keep in mind that should one method of capital collection fail, then another one should be tried.
Raise Capital from Friends
A person can always contact their close friends to get some money to raise capital. Close friends are always there when you need them; however, make sure that there is something in it for them. Think about why they would simply lend you money?
You can ask for money and then pay it back with interest and within a payback period, or you can add them on as partners in your business. Regardless of what you decide to do, just remember, you have to be upfront and honest with your friends, otherwise you will not get the money, even from your friends.
As the word states, angels are always a good point of contact when you need to raise capital for a small business. In a business sense, angels are the not the biblical divine beings, instead, they are very rich individuals that enjoy helping entrepreneurs in their business ventures, should they be good and credible enough.
Just remember that angels are professionals that need to see a proper business plan before they will even think about investing.
Family members can be an entrepreneur’s first point of contact to raise capital. The thing about family is that they will always be willing to help and support a good idea with financial aid. The bond between families is very strong and even if you do not have a very good business plan, you will still be able to get money from your family.
Keep in mind that the amount of money collected from family members may not be enough; however, it is a start.
Stepping into the business world will almost definitely require you to deal with private investors. Private investors can be contacted in order to raise capital for a small business. Private investors are always willing to invest money into new and strong business ventures due to their hope of getting a large return on their investment.
Private investors are professionals in the business world and usually have years of experience in investments. As a result, you must make sure that the business venture you want to follow is profitable and has a solid business plan otherwise private investors are unlikely to be of assistance.
Contacting venture capitalists is also a great way to raise capital; however, it is often one of the hardest. You see, venture capitalists have very strict terms for their investments. Very few small businesses have been successful in getting finance out of venture capitalists.
If you successfully do pass the requirements set by the venture capitalists, then you will get all the capital you need to start up and operate the business.
In addition, venture capitalists will also be able to provide sound business advice and help you make business decisions so that your business grows and survives the business world. Of course, if the business does well, venture capitalists will also take a return on their investments.
Raise Money from Banks
One great way of generating capital for a small business is to contact a bank for a loan. Most banks would be happy to provide a loan to an individual provided their credit rating and history is good. In addition, banks will also need to see the business plan and all expected expenses and sources of revenue before they provide the loan.
Once the loan has been provided, you must pay it back to the bank, with interest.
Entrepreneurship Supporting Institutions
There are actually specific banks for entrepreneurs. Entrepreneurs can go there, pitch their business venture, and if feasibly, the entrepreneurial bank will help provide the capital needed to conduct business activities.
The best part about these institutions and banks is that they provide allow for a longer payback period meaning that you have more time to generate profit.
NGO’s, or non-governmental-organization, are also very helpful in raising capital for a small business. Keep in mind that the NGO may not be able to provide financial assistance directly, however, they will able to guide you in the right direction to reliable sources of capital generation.
Sometimes, an entrepreneur can reach out to their customers in order to raise capital. How? Well, at times, you can charge a customer for a product or service before you actually provide it to them. Essentially, take an upfront payment.
Many a times, customers would be more than happy to make an upfront payment if the product or service is worth it for them.
This should be the last attempted source of finance; after all other sources raising capital have been tried. Essentially, investment bankers are able to help an entrepreneur raise the capital they need for their small business but they must go to the general public for help.
This means that you may end up losing some ownership of your business since your business will be divided into shares offered to the general public.
As you can see, there are a number of ways to raise capital for a small business. All it takes is the right course of action, a solid business plan, great determination and patience.