How to raise capital for business
According to the US small business administration, there are more than 28.8 million Americans are running small businesses at this time. The most modest company ends up after a short time due to a lack of money and planning. If I summarize the success of any business in two words, it will be * planning* and * capital rising*. Either you are running a business as your hobby or as a professional job, you need great passion, commitment, and the most important thing, the capital flow to meet your business needs. Cash is substantial for business. If you run out of it and the limited access to extra resources, the game is over.
Capital raise is your business need- success needs. Here is the complete guide on the explanation of the best ways to raise the capital for your new business.
1.Bootstrapping or self-funding to raise capitals:
For the new startup, it is challenging to get money from the investors. Newcomers often suffered from getting funding without first showing some traction and a plan for potential success. So you need to convert your dreams to reality by your capital. Investing your business by your money is known as bootstrapping or self-funding. Raising capital through bootstrapping has the following pros and cons.
- Bootstrapping can be fruitful because you start building relationships with your business.
- You become professional and careful about your business.
- Investing your resources in your business is *green signal* for investors- as it shows your sincerity and seriousness.
- Your freedom is here; you are the boss.
- If the business is large or needs huge capital, bootstrapping may not be enough.
- It could be a substantial financial risk.
- Less business networking.
Bottom line: If you trust your abilities, plans, vision, and motivated enough to refuse failures, then you can take bootstrapping as the capital raise idea.
2.*Crowdfunding*to raise capital:
Crowdfunding is an open-source, latest, and very admiring method to raise the capital for your business. In this method of raising capital, different investors can invest in your business at the same time. Some consider this idea workable only for small businesses, but a study shows that in 2015, over US$34 billion was raised worldwide by crowdfunding. Raising capital through crowdfunding has the following pros and cons
- Best capital raising way to get a massive amount of funds
- You want to check the public reaction for your new product or business? Crowdfunding is the best way to analyze this and raise capital also.
- Advance way to put the product and get the funds from the market.
- You have to build your business profiles first to get the crowdfunding.
- If you haven’t a solid idea and plan, it’s not going to work.
- You cannot get money overnight; you have to do great preparations.
Bottom line: Crowdfunding is a good idea for capital raising as it owns the vast potential to get a massive amount of capital, at the same time need more professional work from your side.
3.Raise money from Friends and Family:
Famous saying ” it’s not important what you, important is who you know” So if you know a person or If you are packed with friend or family with tremendous business skills, have great how and know of potential risks and possesses a proper capital, then you can ask for your friends or family to raise the capital. According to the Global Entrepreneurship Monitor, 5% of US people used to invest in the business owned by someone else. Raising capital through friend or family have the following pros and cons
- Easy way to raise capital.
- It could be a flexible method of raising capital.
- If your plan could not execute, maybe you will lose a valuable friend. So always talk about risks first.
- Lack of professionalism from your belongings can create a worse situation for you.
Bottom line: Shortlist the friends who trust your talent. Explain to them everything. Focus on your plan.
4.Raise Capital through Angel Investments:
Angel investors are those with surplus cash and keen to invest in new startups. Angel investors have facilitated to start up many prominent companies, comprising Google, Yahoo, and Alibaba. Usually, Angel investors invest around 1 million to startup, and sometimes numerous investors come together and offer funding sources. Raising capital through angel investors has the following pros and cons.
- You get the best way to focus on your plan execution, leaving the capital on your investor.
- Experienced investors can be a source of guidelines for the new arrivals.
- They favor taking more risks in investment for higher returns.
- Angel investors invest for the businesses or new startups after carefully analyzing the plan, which could be good or bad depending upon your project.
- They may desire more control over your business or its management.
Bottom line: Capital raising for the business through angel investor could be the fruitful idea; one should focus on the preparation of execution plan put together and a high pitch ready.
5.Raise capital through Venture Capital:
If you are running or creating a startup with huge potential, you can easily attract the ventures. Venture capitals are skillfully accomplished funds that invest in companies that have vast potential. Raising capital through ventures is possible if your business has been already getting some revenues. Raising capital through ventures has the following pros and cons.
- When you go for the fulfillment of ventures needs and requirements to get the investment, ultimately your startup will more professionally organize.
- They have an investor system and can get many people to invest in your startup.
- They have established businessmen; know what the risks behind any business are.
- They usually want a vast amount of return backs.
- You need to satisfy them at every point; unhappy ventures mean no more investment for the future.
- You have to follow their guidelines.
Bottom line: Raising capital through ventures is the best way to raise capital unless or until you are fully focused professional. You need to grow higher and higher not only for you but also to give back the share to your investor investment.
6.Raise Capital through Bank Loans
Even as technology makes new methods of raising capital, but still the traditional financing goods remain the primary way small businesses fund their processes. When someone talks about the loans for the small business, SBA loans come into mind due to flexibility and availability. Either your startup is small or big, whenever you go for it, you will get it. Capital raising through bank involves the sharing of business plan and its execution. Raising capital through bank loans has the following pros and cons.
- Meager, fixed interest rates
- They usually not interfere with your business.
- Huge paperwork required.
- If your plan will not execute, it causes serious loses for you.
- Longer wait time
Bottom line: Banks provide flexible loans, before thinking about raising capital through bans; one must need to do the pilot study of his plan. Try to execute it at a small level, so you get aware of everything.
- Capital raising through Partnerships:
A proverb says, “if you want to go fast, go alone. If you want to go far, go together” Likewise, either your business is new or old, bringing a partner can bring more professionalism in work and more resources to raise the capital. A partner can help you through all the day-to-day features of organizing a business, as well as preparing, budgeting, accounting. Raising capital through partnership has the following pros and cons.
- I can give you some relief by sharing the workload.
- You can get the capital from him/her
- You can execute your plan in a much professional way.
- May be his mind level cant resembles you.
- It cannot raise huge capital for business.
Bottom line: Before choosing a partner, try to understand the psychology of his/her by spending some time
There are different ways to raise the capital for your business as shortlisted above. Don’t get discouraged if any option could not support you. But before going for anyway, one should need to study its business needs and demands.
Try to pinpoints the capital needs and time when you need it, and then go for the next step. Never demand any capital investment from others unless you get the final plan ready. You should also do a pilot study of your project before taking it to a high level. It will tell you about the good and bad things about your business plan.
After everything is ready, go for the capital raising. You can choose any above-mentioned types to get funds. When you will go for the capital raising, ask more what you required. So Price fluctuations of different things could not de-structure your plan. Always dream big, plan big, and get big.