Running business isn’t child’s play. Yes, it takes a great idea to get started, but your vision wouldn’t move without capital. If you are thinking on how to raise capital to start a business, there are points to bear in mind before you get to acquiring start-up finances for your business venture.
To start with, 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 to start a business!
When it is about how to raise capital to start a business, start-up 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 start-ups. So explore all possible sources that you can tap into before you think how to raise capital to start a business.
Option one on how to raise capital to start a business is using your own savings. When you have money of your own, why look at external sources? If you have set aside money, why borrow? But before you opt for this, make sure you have a good talk with subject matter experts, look into the long-term consequences, and decide which form of fund is the best way for raising capital to start a business. You could have savings, mutual funds, life insurance, stocks, pension plans or real estate, so 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.
Often entrepreneurs looking to raise capital to start a business use credit cards to fund their start-up. According to a survey, credit cards form nearly 30% of funding for start-up business ventures. Though credit cards are a source that’s easily obtainable, they are also incredibly risky and the most expensive since the annual rate of interest is quite high.
When your own funding is not an option, there is another great option for how to raise capital to start a business – friends and relatives. Though it may seem shameful to ask them for capital, it seems to be quite a popular option because according to a survey it is the option of choice for 30% of entrepreneurs who are wondering how to raise capital to start a business. If you decide to go this way, you must have your attorney draw up a business contract because though you approach people you know for funds in an informal, non-business way, business is best done transparent, telling them how their investment will profit and ensuring that you will keep up your part of the agreement is the most professional way to do business. If you are borrowing from people you know, instead of asking them to invest, it’s best to put the terms in writing to avoid a strain on your relationship. You could also offer them profit sharing.
How to raise capital to start a business? Think venture capitalists. As professional investors they have access to a large pool of capital, accumulated from a variety of sources. As people who are in the business of investing, they are open to speculation, high risks, new ideas, and the likes. So when you think how to raise capital to start a business, think venture capital because they provide funds to your company if you can prove that your business will have a solid track record and a potential return on investment. Make sure you find a venture capital firm that has similar goals and ideals as yours. Ensure that you have a risk management plan, the foresight to predict where you see your company down the line, and do consider all possible contingencies. And remember, venture capitalists invest in people, not just companies.
Private investors are those who are interested in making money with their capital through non-traditional markets. These “angels” could be anyone – someone you know, your banker, your attorney, like-minded individuals, or an individuals who for the love of business, seek out new opportunities to invest in return for equity ownership. These people can give you guidance for start-ups, they could improve your ideas and mould your business, but they usually demand high returns for their investments. So if you’re thinking how to raise capital to start a business, think no further.
Who do you turn to when there’s no one to turn to – Banks! Yes, as the least expensive route to get funds, banks are your answer on how to raise capital to start a business. With as less as 2 percent, starting a business is easier than ever before. There is also a great deal of documentation and paperwork to be done. However, as an entrepreneur you will have to have a clean state credit history to get a loan. Different banks might have different parameters to offer loans. You have the choice of a secured loan or an unsecured loan – the difference being you having to pledge your assets Vs. you paying lesser interest.
Another easy way if it’s about how to raise capital to start a business, is through advertising. Ads in a national publication could reach out to potential investors and get leads. As a medium that communicates the idea, the business need, the expected return etc., advertisements act as a mode to connect entrepreneurs with investors and capital seekers. Websites with financing ads can also serve the same purpose.
When it comes to brokers who deal in circulation of funds between investors and entrepreneurs, your issue on how to raise capital to start a business is very much a piece of cake. Money brokers act as a bridge in financing and can almost always guarantee that you get the amount of money you want/need, for a percentage of the gross amount that is their fee. The retainer fee is always paid up-front, so be ready for that.