Capital raising for a small business could be a challenge. Especially if you are not aware of the avenues of raising money.
One of the toughest tasks for any entrepreneur that intends to start up their very own small business is raising capital for it. In very simple words, capital is the amount of cash the business has available to execute various business activities. Raising capital is never a simple task and usually requires so much determination and patience.
There are a number of reliable ways that an entrepreneur can raise capital for their small business, but before using any capital collection methods, remember to have a business plan to show to your investors. A business plan basically states the nature of the business, the mission statement, the objective, the business goals, costs, staff and everything regarding business.
Capital Raising for a Small Business
Below are some reliable ways and things you need to do to successfully raise capital for a small business.
Raise capital from friends
Individuals can always contact their close friends to obtain some money to raise capital. Usually, close friends are always there when you need them; but, ensure that there is something in it for them. Pause and think about why they would simply lend you money?
You can ask for money and then pay back with interest within a payback period, or you can simply add them on as partners in your business. Irrespective of what you decide to do, remember, you have to be upfront and honest with them, anything short of that, you will not get the money.
Family members are considered the entrepreneur`s first point of contact to raise capital. The good thing about family is that they will always be willing to support a good idea with financial assistance.
The bond between family members is very strong and even if your business plan is not a good one, you can still get money from your family. However, keep in mind that the amount of money obtained from family members may not be sufficient; it`s a start.
These are not the biblical divine beings; instead, they are very rich individuals that enjoy helping entrepreneurs in their business ventures, if they are good and credible enough. Angels are serious business-minded professionals that need to see a proper business plan before they will even think about investing. So, make sure you have a good business plan if you are considering having them invest in your business.
Your decision to step into the business world will almost definitely require you to deal with private investors. Private investors can be reached in order to raise capital for a small business. Private investors are ever willing to invest money into new and viable business ventures because of their hope of getting a large return on their investments.
Private investors are classified as professionals in the business world and usually have reasonable years of experience in investment. Therefore, you must ensure that the business venture you want to go into is profitable and has a solid business plan, if not; investors are unlikely to be of assistance.
Reaching out to venture capitalists is also a good way to raise capital, but it`s usually one of the hardest. To let you know, venture capitalists are known for haven very strict terms for their investments. Not many small businesses have been successful in obtaining finance from venture capitalists.
If you are able to meet the requirements set by the venture capitalists, then you are sure to get all the capital you need to start up and run the business.
Raise money from banks
One good way of generating capital for a small business is to contact a bank for a loan. Majority of banks would be glad to provide a loan to an individual provided their credit rating and history is credible. Also, banks will need to see the business plan and sources of revenue and all expected expenses before they provide the loan. However, once the loan has been granted, you will pay it back to the banks with interest.
Entrepreneurship supporting institution
There are specific banks for entrepreneurs. Entrepreneurs can simply go there, pitch their business venture, and if found feasibly, the entrepreneurial bank will help make the capital needed available to conduct business activities.
The most important aspect of these institutions and banks is that the loans they provide permit a longer payback period, giving you more time to generate profit.
Non-governmental-organizations are also very supportive in raising capital for small business. Note that the NGO may not be able to provide financial aid directly, but they will be able to guide you in the right direction to reliable sources of capital generation.
At times, an entrepreneur can contact their customers in order to raise capital. How do you do it? Well, sometimes, you can simply not charge a customer for a product or service before you actually provide it to them. Significantly, take an upfront payment.
This is considered the last resort; after all other sources of raising capital have been tried. Significantly, investment bankers are able to aid an entrepreneur raise capital they require for their small business, however, they must go to the general public for assistance. This means that you could end up losing some ownership of your business because going to the public will mean your business will be divided into share offered to the general public.
Elijah Adah is the founder and CEO of Rextic Media, a full-service digital marketing agency that helps small businesses grow and increase revenue and profit. He is a full-stack web developer by day and by night, a writer. He writes on tech, business, startups, marketing, travels & pretty much any topic that catches his fancy. He is also an Otaku (Japanese anime addict) while not coding or writing.