Financing is one of the most critical aspects of startups in initiating a small business. This article is a guide for those who are looking forward to learning how to raise small business capital from investors.
It is without saying, raising capital for a small business arguably is one of the toughest jobs for a small business owner. As a startup, you will need patience and meticulous planning to get funds for your project.
There are many ways startups can approach to get funds for their businesses. However, the first thing to do is to list down the reasons for the financing needs.
This is the reason, most business experts advise crafting a well-thought-out business plan.
Why Creating a Business Plan is a Must to Raise Capital?
A business plan will include important aspects of your business like mission, vision, operational plan, financial plan, and marketing plan. It not only works as a road map ahead but also as a vital document to pitch for funds to investors.
Here are some tips you must consider before presenting a business plan to raise capital from potential investors
- Clearly mention how much funding you’re looking for.
- Mention why you need this fund and how your business will benefit from this investment.
- What return on investment investors can expect from your business?
- What is the payback period for the investors?
- What the investors will receive for their support (for example -equity in the company, a role on your board, etc)
- What reporting structure you will provide to keep investors in the loop about the happenings of the business and how the money is being spent?
Create a convincing business plan and strategy with the support of a strong management team, a strategy convincing enough to earn good profits. Before you develop these, it is going to be a time waste both for you and investors in investment-related discussions.
Top 8 Ways of Raising Capital for Small Businesses
1. Approach friends and Relatives
Friends and near ones are some of the best places to approach for initial funds to start a small business. However, you must be honest while asking for money. Always let them know when you are going to repay the money. It is better to offer them an interest in the investment or include them as a partner.
Remember if you fail to repay them at the appropriate time, your chances of getting money in the future will reduce.
2. Credit Cards
If used intelligently, business credit cards can be an excellent source of small funds. This can be a good source to meet up immediate fund requirements.
3. Angel Investors
Angel Investors are financers with expertise in certain fields looking to invest in certain startups along with expertise and guidance if necessary.
They are a good source for small business owners to pitch for funds. You must have a business plan while contacting them as they will for sure look at it in minute detail before investing.
4. Venture Capitalists
Venture capitalists are another good sourcing point for investment for startups. However, it is not easy to get funding from them as they set very strict terms for funding.
It is seen not many startups get success in securing finance from them. If you are able to convince venture capital investors, there are multiple benefits. You not only get finance but also professional business advice.
Crowdfunding has become much popular in recent years. These are online platforms where fund seekers can apply for funds for their business needs.
There is a community of Crowd funders who checks your requirements and business model and if find it interesting, invest in your startup.
6. Bank or Financial Institutions
Banks and financial institutions are the biggest lenders of business finance for small businesses.
If your credit rating is good and has a fair history of banking transactions, getting funds from banks is easier.
7. Government Institutions
Every country provides various schemes and subsidies to encourage startups. As a small business owner, you must keep in touch with government nodal agencies to remain updated with various new loan offers.
8. Approach NGO’s to Raise Capital
If you don’t qualify for government or traditional business loans, NGOs or microfinance organizations are the go-to points to get funding.
Non-profit organizations normally approach microfinance to arrange funds. As a matter of fact, microloans are one of the biggest sources of funding agencies in developing nations.
As a startup, bootstrapping is the best way to minimize funding needs. You must have a clear idea of where exactly you need funding for your business. And as per requirement, you must be prepared to interchange your funding resources while raising capital as a small business owner.
About the Author: 99businessideas.com led by Rupak Chakrabarty is committed to helping beginners, entrepreneurs, and small business owners in starting, managing, and growing their business. Our aim is to educate the entrepreneur on the various stages of entrepreneurship.