One of the greatest challenges for any entrepreneur wanting to start up their own small business is to raise capital for it. The term ‘capital’ in this sense, relates to the amount of money required to launch the business and get it off the ground; as an example, you might need to buy stock, rent premises, purchase equipment or ensure an adequate cash flow to fund staffing costs for the first few months.
There are two arguments when it comes to startup capital; on the one hand it pays to be conservative in your financial requirements as the less you require to raise, the more likely you are to achieve that amount – particularly if looking to borrow money from a bank, friends and family, or get investment through external stakeholders. However, on the other hand, one of the main reasons small businesses fail is due to them running into cash flow problems and a huge component of these problems are due to startups being underfunded… and therefore not able to keep their head above water in the month-to-month running of the business.
Raising capital is rarely an easy task, and for many entrepreneurs it can be a scary process – going before a panel of investors and being grilled about their business, for example… or even securing a business loan on their house, whilst it circumvents the need to “sing for their supper” in the sense of convincing investors – it now makes their world very unstable, given that they now have the security of their own home riding on their business being a success.
Entrepreneur’s can face immense emotional pressure and work very long hours; all the time knowing the odds are heavily stacked against them… but that’s what makes an entrepreneur an entrepreneur is their determined spirit; they are risk takers, they are modern day explorers and voyagers found in ancient times; setting off on journeys into stormy and perilous seas in pursuit of discovering great new riches.
However, without capital behind them, the chances of them even getting out the harbour are incredibly slim. This article offers three suggestions to think about when raising capital:
GET A BUSINESS LOAN
The most traditional route for setting up a small business is to get a small business loan from a finance company such as https://smallbusinessloans.co/. This is one of the most easy, reliable, and certain ways of financing your business. You keep complete control of your company, as you aren’t having to offer equity to external investors, who each get a say in how your company is run – and convincing one person, is a whole lot easier than going around investor meetings.
FRIENDS AND FAMILY
If you have a wealthy relative, or several friends and family who are open to backing your business for a small incentive (such as interest on the loan) then this can be a great option, as it will cost less and be easier to arrange than commercial financing; however, borrowing money from friends and family can be a very stressful experience that totally changes (and sometimes annihilates) friendships. It might be worth considering the potential strain put on your friendships should the business not turn out to be a success.
A recent trend in raising startup capital is that of crowdfunding; where you pitch your idea on an online platform such as www.crowdfunding.com and strangers can offer bits of cash to back your idea – but these ‘bits of cash’ can accumulate to several million dollars.
In summary, you have three main options; raise money from a commercial source such as a bank, raise money from friends and family, or raise money via crowdfunding. Whatever route you decide to go down just make sure that your cash flow projections are realistic and that you are asking for as much as you actually need.