Financing is one of the most important parts of starting up a new company. This guide covers some of the basics for those who want to learn how to get financing from investors.
Raising capital for a small business is undoubtedly one of the most challenging tasks for a small business entrepreneur. As a startup, entrepreneurs must be patient and meticulously plan their fundraising strategy.
How to Approach Raise Capital for Business Funding?
You need to know why you need the loan before you approach lenders. Most business owners recommend writing out a detailed business plan.
A good plan helps you visualize where you want to go and how you’re going to get there. It’s also an essential tool to present to potential partners and clients.
Before presenting a business plan to potential funders, here are some things you need to keep in mind.
- Make sure to clearly state how much funding you’re seeking.
- Explain why you need this investment and how your business will be able to use it.
- Investors expect a certain ROI (or rate of income) from their investments.
- Investors get back their initial investment plus interest within a certain time frame.
- Investors who invest in startups get equity in the companies they back, a seat at the table, and access to resources that help them grow.
- You should always be able to report to your shareholders about the happenings of your business and how the funds are being used.
You need to create a convincing business plan before developing one. It’s going to take up a lot of your valuable resources if you don’t.
Top 8 Ways of Raising Capital for Small Businesses:
1. Approach friends and Relatives
Friends and near friends are some of the best sources to get funds for starting a new venture. You should be honest about your intentions to pay back the loan. Include them as partners so they can share the profits if the idea turns out successful. Offering them a percentage of the profit is also a good option.
If you don’t pay back your loan when you’re supposed to, your chances of getting loans from others will decrease.
2. Credit Cards
Business credit cards can be useful for meeting short-term funding needs. They’re not always ideal, though.
3. Angel Investors
Angels are investors who specialize in particular sectors (such as healthcare) and who may offer additional support for companies they believe in.
They are a good resource for small businesses to raise funds from investors. You need to have a detailed plan when pitching to them, though, because they will definitely take a close look at it.
4. Venture Capitalists
Venture capitalists are an excellent source of startup investments. However, they tend to be very selective when deciding which companies to invest in.
Venture capitalists often offer their expertise for free, so if you’re able to convince them to invest in your startup, they may provide valuable business guidance. They may even help you secure additional funding.
5. CrowdFunding
Crowdfunding has grown into an increasingly popular method of raising funds for small businesses.
There are communities of crowd investors who check your requirements and business models and if they find them interesting, invest in your startups.
6. Bank or Financial Institutions
Businesses use banks and financial institutes to borrow money from them.
If your credit score is high and your bank account has been used for previous transactions, then getting money from banks is easy.
7. Government Institutions
You need to stay up to date with government agencies to know about any new schemes and subsidies for small businesses.
You can check out the different SBA loan programs here.
8. Approach NGO’s to Raise Capital
If you don’t qualify for government or traditional bank financing, non-profit groups or microfinance institutions are the best options to obtain funding.
Microfinance organizations typically provide loans for small amounts of money.
Microloan programs are one of the largest financial institutions in developing countries.
Conclusion:
Bootstrapping is the best strategy if you want to minimize your startup costs. You must know exactly where you need funds for your project. Also, you must be ready to exchange your current sources of revenue for investment from others.
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