Ways To Raise Capital For Small Businesses
Raising capital is one of the most difficult tasks, for any entrepreneur that
wants to start up their very own small business. In Accounting, capital is the amount of money which is available for the business to spend
on various business activities. Raising capital is not an easy task especially for an upcoming entrepreneur and often
requires a lot of patience and determination.
There are so many ways that an entrepreneur can raise
capital for their small business, however, before using any capital collection
methods available, don't forget to have a business plan to show to your investors. The nature of the business, the objective, the
mission statement, the business goals, costs, expenses, staff and everything
business related will be stated in the business plan.
We made our research and discovered few ways that a small business owner could raise capital for their business, don't forget to try another method if one method fails
Raise Capital from Friends
A person who wants to start a small business can always contact their close friends to get some
money to raise capital for new set-up. Some close friends are always there at the point of need;
however, make sure that there is something in it for them. Think about why they
would simply lend you money? When you ask for money, pay it back with interest and
within the payback period, or you can add them on as partners in your business.
Regardless of what you decide to do, just remember, you have to be upfront and
honest with your friends, otherwise you will not get the money, even from your
friends.
Angel Investors
In a business, angels are the not the biblical divine beings, instead, they are very
rich people that enjoy helping entrepreneurs in their business ventures. They are also called philanthropist. Always remember that angels are professionals too and they need to see
a proper written business plan before they will even think about investing or giving you loan.
Family Members
Family members are always entrepreneur’s first point of
contact when they want to raise capital. The thing about family is that they will always be
willing to help and support a good idea with financial assistance. Families is very strong bond and even if you do not have a very good and presentable business plan,
you will still be able to get the amount of money they require from family. Sometimes, the amount of money collected from family
members may not be enough for your business, but it can be a starting point.
Private Investors
Going into the world of business will almost require you to deal with private investors. You can contact private investors in order to raise capital for a small business. Due to their hope
of getting a large return on their investment, private investors are always willing to invest money into new and strong business ventures. Private investors usually have many years of experience in investments and business. As a result, you must make
sure that the business venture you want to commence is profitable and has a solid
business plan otherwise private investors may not want to invest or be of assistance.
Venture Capitalists
Venturing capitalists are investors that provides capital for new business. Contacting venture capitalists is a great way to raise
capital capital for your small business; but it is often one of the hardest ways. Venture capitalists
have very rigid terms for their investments. Over the years, only few small businesses have
been successful in getting finance out of venture capitalists. You will get all the capital you need to commence and
operate the business if you successfully pass the requirements set by the venture capitalists. Furthermore, venture capitalists will provide sound business advice and help you make business decisions so that your
business grows and survives the business world. Venture capitalists will also take a return on their investments if the business does well.
Raise Money from Banks
Contact a bank for a loan is one of the great ways of getting capital for a small business. Provided their credit rating and history is good, most banks would be happy to provide a loan to you. Furthermore, banks
will also need to see the business plan and all expected expenses and sources
of revenue before they provide the loan facility. Once the loan has been provided, you must pay it back to the
bank, with interest over a given period of time.
Entrepreneurship Supporting Institutions
There are some specific banks for entrepreneurs, where they can go, pitch their business venture, and if feasibly, the
entrepreneurial bank will help provide the capital needed to start the activities. These institutions and banks allow for a longer payback period which means that you have more time
to generate profit profit before payback period.
Ngo’s
NGO’s, means non-governmental-organization, they are also very
helpful in raising capital for a small business. NGOs may
not be able to provide financial assistance directly for you, however, they can guide you in the right direction to reliable sources where you can get capital.
Customers
An entrepreneur can raise capital by reaching out to their customers. How? Well, you can charge a customer for a
product or service before you actually deliver it to them with an
upfront payment. If the product or service is worth it for them, customers would be more than happy to make an
upfront payment.