Raising Capital for Small Businesses

You own a successful start-up business and you dream of expanding. Running business isn’t child’s play. Yes, it takes a great idea to get started, but your vision wouldn’t move without capital, which would not be possible without finances. So the question is how to raise capital for a small business, the answer is – it’s easier said than done. For a small business, expansion depends on funds and funding depends solely on the business owner’s ability to acquire capital. Though raising capital is the most basic trait a businessman must have, for a new entrepreneur, this might prove to be quite a tough task. So here’s a quick guide on how to raise capital for a small business.

THE GROUNDWORK

To start, as an entrepreneur here’s what you need to do: research, research and more research. From infrastructure, costs, competitor’s analysis, to time lines, and expansion, get information about every aspect of your business so you know exactly what you are getting into when you get to the ground. On the other hand, make it a point to network and build contacts, get business leads and vital industry information from other entrepreneurs and identify potential partners that can help in your funding process. After all, you are learning how to raise capital for a small business!

When it is about how to raise capital for a small business, entrepreneurs must present themselves and their business idea in good light. It is also essential to project your commitment and belief in the venture to investors so they believe your idea is a good investment. Financing isn’t easy when it comes to small businesses. So explore all possible sources that you can tap into before you think how to raise capital for a small business.

IDENTIFYING SOURCES

There are several sources to consider when looking for finances. It is important to consider all of you options before making a decision. If you are looking at how to raise capital for a small business, at the start-up stage, you need start-up financing to get your business off the ground – for leasing equipment and office development. For an easy and reliable option, you could take a term loan from your bank or a guaranteed loan that covers as much as 80 percent of your principle. Got savings, insurance, mutual funds or credit cards? Use them for financing. But when you use the funds for your business venture you will need to understand which of the options have scope of bringing in better returns on investment. If your own funding is not an option, there is another great way of raising capital– friends and relatives. If you aren’t established yet, a private loan would be a good idea because getting it from a bank would be rather difficult. How about an “angel” investor – someone who gives you money for returns on investment? Or what about some venture capital – just find capitalists who are in the business of setting up other businesses. Need a little cash? Get a microloan. If you have assets, you could use them for funding. If you have a product that can bring you royalty, you could get a loan based on that.

THE PROCESS OF ACQUIRING FUNDS

To start with, you will need to find investors. Getting hold of potential financers for your business is definitely the most difficult part when you think of how to raise capital for a small business. So you need to zero in on the right source of funding for your business and proceed with the legalities.

Secondly, you will need to establish a good relationship with your investor. A professional, clear, clean on paper relation will definitely take you closer to getting the capital and moving one step closer to your business goals.

Thirdly, it is essential to have a well documented agreement that’s drawn in consultation with an attorney listing down all terms and conditions and an exit strategy. The repayment and share in ROI (if at all) must be discussed beforehand as well.

As an entrepreneur, to be on the safe side, you can always expect some contingencies, unprecedented questions, documentation hassles, objections or maybe even an objection on your business plan at any stage. So make room to alter your plan of action accordingly, b e ready to answer questions and avoid going on the defensive – remember capital is in line.

Finally, it is necessary to handle your commitment towards the investor in the easiest, least stressful and most professional manner, in order to maintain a smooth operation in business. You never know, the same investor may provide you further funds based on your relationship or your potential to touch newer heights in the future.

THE CONSTRAINTS IN GETTING FUNDS

If you are thinking how to raise capital for a small business, get ready to face the truth – it is a frustrating process and needs a lot of deliberating. Yes, the task is easier said than done. But never let that bog you down and not try to get funding. Though complex, if planned effectively, raising capital for a small business may not be an impossible thing to do. And if approached from the right direction, getting finances may not be a painfully excruciating process. The biggest problem you face is that you have a small business. Small is often used hand in hand with inexperienced – though it may not necessarily be true. Banks may not approve loans because they don’t have a great track record to go by. People may not invest because they see it as a high risk investment – they aren’t too sure if your business will take off in the right direction, they don’t know if you will cut a good ROI or even break even, they will see their money again. So it takes a great business idea, plan, perseverance and the art of convincing on how to raise capital for a small business.