Are you a small business or entrepreneur with a great idea but wondering how to raise capital to fund your project? You are not alone. Even startups and businesses that have been in operation for several years face similar problems raising capital for expansions or getting new inventory. There are several ways that small businesses and entrepreneurs can and have used to raise capital. In this first part, let’s take a look at five of the ten avenues you could explore to raise capital for your business:
1. Personal Financing. Financing a business with your personal capital says a lot about how much you are invested in and passionate about the business and your ideas. Additionally, saving towards an idea you have or using saved funds to finance your business goes a long way towards informing potential investors that you are willing to do whatever it takes to make the idea and the business work.
2. Family and Friends. Friends and family understand you and your aspirations because of the years that those relationships have lasted. Your family and friends have witnessed you grow and improve, and you may have used them as a sound board for ideas. Leveraging the relationship you have with them to fund your business carries the advantage of getting money potentially without paying interest. Even if your friends and family wanted some interest, it would likely be below that charged by banks and other financers. However, be cautious of taking advantage of these important people in your life. They may want to see you succeed, but probably not at a high personal cost to them.
3. Find an Angel Investor. Angel investors are usually people with several years of business experience that have amassed some wealth and are looking for a new business to invest in. Getting the attention of an angel investor and pitching your idea could help you raise the capital needed to fund your business. Just remember to be well informed of the facts and figures supporting your pitch and how the angel investor could make a return on their investment. Usually, an angel investor would like to gain at least a twenty-five percent (25%) stake in the business, so be prepared to give up some interest for the big bucks you could get from an angel investor.
4. Microloans. A microloan is usually a short-term loan with a low interest rate for small scale businesses and entrepreneurs. As a small business or entrepreneur usually, you could get microloans anywhere from five hundred dollars ($500) to thirty-five thousand dollars ($35,000) to fund your business. Examples of recent additions to the list of microlenders that provide microloans include PayPal Working Capital, TrustLeaf, and BitCoin Brands. A more local microlender is The Greensboro Community Development Fund: https://www.gcdfonline.org/
5. Bank Loan. Obtaining a loan from a bank is the traditional route to go if the entrepreneur or business has a good credit history. Sometimes the bank would like to have collateral securing the loan so that the bank can get substantial part of its capital back if the entrepreneur or the business is not able to pay back the loan. It’s not a bad idea to go ahead and call banks in your area for information and whether they have earmarked some funds for small business lending.
By Edem Ahiale & Chris Haverstrom
References
“10 Ways to Finance Your Business” Inc., By Inc. Staff, https://www.inc.com/guides/2010/07/how-to-finance-your-business.html. Accessed 17 May, 2018.
“3 Startups Offer New ‘Microloan’ Options For Entrepreneurs With Big Ambitions” Startup Financing, The Entrepreneur, https://www.entrepreneur.com/article/235947. Accessed 17 May, 2018.
Zwilling, Martin. “10 More Creative Ways To Finance Your Startup” Forbes Entrepreneurs, 6 Mar. 2013, https://www.forbes.com/sites/martinzwilling/2013/03/06/10-more-creative-ways-to-finance-your-startup/#6fafa85232d9. Accessed 17 May, 2018.