What Are the Different Ways to Raise Capital for My Business?
A bright idea needs backing to get off the ground. From multinational companies to local businesses, capital is the fuel that drives growth. You need reliable funding to implement your vision, elevate your business, and succeed in your field.
Wondering about the different ways to raise capital for your business?
Crowd-funding, angel investors, loans—read on to discover the tried and tested avenues for raising capital. Whether you are just launching your business or seeking a subsequent round of funding, there is a method to suit your needs.
Take Out a Business Loan
Traditionally, loans have been the bread and butter of business financing. From local retail shops to world-shaking eCommerce, loans have been a reliable way for entrepreneurs to achieve their dreams.
Especially if your company is in its early stages or going through “pre-seed” funding rounds, you may wish to explore your options when it comes to business loans. Whether you are interested in micro-loans, traditional bank loans, or Small Business Administration (SBA) loans backed by the federal government, you may discover several funding opportunities. Ultimately, you will need to choose the loan that suits your business.
Loan qualification requirements will vary, but most businesses will need the following to apply for a loan:
- Business plan – Craft a winning business plan by outlining the totality of your company goals, researching market trends, presenting product or service prototypes, and devising strategies to maximize your potential profits. Writing a business plan can take significant time, effort, and even outside council to ensure your plan is sturdy and reliable.
- Financial statements – Lenders will likely request various financial documents, including tax, income, or annual profit and loss statements to determine whether your business is viable.
- Credit reports – Your personal and business credit reports will be pulled by any potential lenders. Your credit score may impact your ability to secure a loan as well as your potential interest rate for any business loans you are offered.
Loans can be a fast and secure way to build financial runaway for a new business and as it prepares to scale or seek more substantial funding from other sources on this list.
Partner with Angel Investors
Businesses today may have ample opportunities to partner with high-net-worth individuals known as “angel investors.” Angel investors use their personal capital to invest in emerging businesses and are interested in stepping into a project at the ground level by providing the initial funding.
Angel investors will have a strong attraction to a project and the team behind it. While angel investors will typically request financial information, they are also drawn in and motivated by the vision and ethos of your company.
If you are interested in the potential for angel investor funding, consider the following:
- Seek out showcases – Finding your ideal angel investor may seem like an impossible feat. Fortunately, there are national organizations and events dedicated to connecting entrepreneurs and angel investors. Seek out these collaborative venues to find a match that suits your business.
- Your pitch – As mentioned above, angel investors are often driven by the full scope of your project. Develop an informative and engaging pitch that concisely details your mission in under five minutes to catch the interest of potential angel investors.
- Seed money vs. cash injections – Some angel investors may only be interested in a one-time investment, while others may commit to a series of cash injections over months or years. Discuss your financial vision with your angel investor to negotiate the appropriate funding model for your business.
Explore Venture Capital
Venture capital (VC) investors and angel investors are frequently lumped together. Both these funding methods involve high-net-worth individuals investing large amounts of capital into new businesses. However, where angel investors are typically single individuals, venture capital involves a limited partnership of investors pooling their resources.
Business owners might seek venture capital investment for the following reasons:
- Larger investments amounts – Venture capital investors may invest millions in up-and-coming businesses or even unproven business plans.
- Larger ownership steaks – You can expect a venture capital investor to require a 25 to 50 percent stake in your business, depending on the level of their investment.
- Hands-on involvement – Looking for a business venture that provides a deep partnership? Venture capital firms often look to bring a hands-on approach to their investments, collaborating with various teams and lending their expertise to projects.
A bottom-up approach to raising capital, crowdfunding allows businesses to pool funds from tens, hundreds, or even thousands of individuals interested in contributing to your venture. Individual investments may be small. But, with enough interest and momentum, the overall capital could be enough to fund your business.
When considering crowdfunding, there are a few unique challenges, including:
- Finding a platform – There are several digital platforms designed to host business and process the transactions necessary to secure funding. Notably, these platforms will take a fee from your overall earnings to pay for their services.
- Rewards – To attract potential crowd funders, you will need to offer something. Most businesses create a tier list of potential perks and rewards for those who contribute. From partial ownership to lifelong discounts, devise a set of rewards that will encourage funders to join you in your venture.
- Promotion – Crowdfunding is reliant on word of mouth. Plan your marketing strategy and invest in the necessary promotion to bring more eyes to your campaign.
Raise Funds Locally
Your community and personal network is often the best place to begin searching for fundinginitially get your business off the ground. Despite the availability of national and international funding opportunities, local funding reminds a viable option for entrepreneurs able to concretely communicate their vision.
Local funders may include:
- Friends and family – You may already have the connection you need to fund your business. Share your plan with your friends and family to discover others that may share your passion. If your personal network is not the right fit for investment, they may be able to connect you with someone who is.
- Local business partnerships – The extended network of local businesses and startups in your area may be looking to expand their venture, partner up, or reinvest in another sector. Reach out to local businesses that may have cross-market connections.
Determine your strategy for soliciting local investments and stick to it. You may feel strange about asking those you know to join your venture, but approximately 5 percent of adults have contributed to an emerging business. That means millions of people are making local investment a reality.
CFO Hub: Keeping Your Capital in Order
With all funding ventures, be clear about your business needs and transparent about your goals. Through quality communication, a professional attitude, and rigorous dedication, you are certain to secure the capital needed for your business from one of the above sources.
But before, during, and after your funding, you will need someone to manage your finance and help along the way.
At CFO Hub, we make commanding your capital simple with outsourced CFO services, staffing and recruiting services, and full accounting support. We can ensure all your numbers add up when you approach your next funding target, and help you design a sustainable financial future for your business.