How To Raise Capital Fast – 6 Easy Ways to Raise Capital for Your Business From bootstrapping to crowdfunding, here’s how to raise capital for your business.
If you’re looking for ways to raise capital for your new venture, you’re not alone. According to the 2020 Small Business Administration (SBA) report, small businesses borrowed $645 billion. This is more than the GDP of Sweden!
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More than half of all companies surveyed borrowed $100,000 or less. This adds up to many small business owners looking for financing.
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Money doesn’t grow on trees, but there are many ways you can find financing for your business – some more traditional than others.
Assuming your business isn’t in an industry that requires a lot of start-up capital, such as manufacturing or transportation, you may be able to finance your own business – and it may be more viable than you think.
For example, even if you don’t have enough savings to run a business, you can get a 0%/low interest rate business credit card that allows you to borrow for a certain period of time without charging interest.
You might think that funding a company yourself involves a lot of risk – and it does. But it is important to consider your potential.
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Brent Gleason, a leadership and team building coach specializing in organizational transformation, explains, “If you believe in your vision and absolutely refuse to accept failure as an option, you should feel comfortable investing your money in the company.
If you invest some of your own money, investors and lenders are usually more willing to work with you later.
There are many crowdfunding success stories. And with the right product and pitch, you can be one of them.
For example, Formlabs, a maker of affordable desktop 3D printers, raised $3 million on Kickstarter in 2013. This capital has allowed the company to expand its operations and achieve its goal of making 3D printers affordable to the public.
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Finally, the 3D printer manufacturer attracted the attention of venture capitalists. During the Series A round, Formlabs closed a $19 million investment, allowing them to expand beyond their initial goals.
Crowdfunding gives you the opportunity to connect with like-minded people that you wouldn’t normally be able to connect with. You can measure interest in your product and learn what resonates with people and what doesn’t. It shows you how to improve your product and pitch. Most importantly, crowdfunding can help you raise money to finance your business.
Nathan Resnick, a serial entrepreneur who has successfully raised money on crowdfunding sites, emphasizes that you need to develop your story because “people on crowdfunding sites like Kickstarter or Indiegogo want to know how you made your idea a reality.”
Your video pitch should demonstrate the value of your product, the need it serves and why you need support. Having a good website and doing PR also helps.
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While technology is creating new ways to raise capital, traditional financing products remain the primary way small businesses get financing. According to the Small Business Administration (SBA), nearly 75% of new business financing comes from business loans, credit cards, and lines of credit.
In general, the small business loans with the most favorable interest rates and terms are SBA loans and term loans from banks and other financial institutions. To be eligible, you must generally meet the following requirements:
These are not hard and fast rules and vary from lender to lender. If you don’t qualify for a term loan with a good APR, there are other, albeit more expensive, types of financing available.
If you have unpaid bills, you can opt for bill financing to get paid faster. Or, if you need cash for machinery, equipment, office furniture or the like, consider equipment financing.
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Before applying for a small business loan, be sure to prepare all the loan documents you will need in advance. You will be asked to provide an income statement, balance sheet, tax return and bank statement. In some cases, your personal information may also be verified.
Raising capital through friends and family is a viable option for many. According to the Global Entrepreneurship Monitor, 5% of US adults have invested in a business that someone they know has started.
Caron Beesley, content marketing specialist and SBA contributor, recommends that you ideally choose a friend or family member who has a solid background in business. He also suggests that you “limit your list to friends or family members who believe in your success, understand your plans, and understand the risks.”
Once you do, Beasley emphasizes that you need to demonstrate passion and hard work by having a solid business plan and direction. Also, be realistic about how much money you need.
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Finally, make sure you agree on the form of financing. It can be a loan or a share in your company. If the money is a loan, agree on a repayment schedule and use a P2P lending website to document everything and manage the loan.
Angel investors are defined as accredited individuals with a net worth of more than $1 million or an annual income of more than $200,000. They usually work alone, but can team up with other angel investors to form a fund.
Knowing this, angel investors can be a good source of capital for your business. First of all, you need to put together a solid business plan and have a great pitch ready. You need to grab their attention with enthusiasm and promising data about your business’s current situation and future potential.
For example, Funding Post organizes pitches for angel investors across the country. And the Angel Capital Association is a great platform for finding, meeting and arranging pitches for angels.
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Venture capitalists (VCs) typically want to invest in slightly more mature companies than angel investors, and sometimes want more say in how day-to-day operations are run.
Because VCs are responsible for delivering a specific return to the company or fund, they want scalable and cash-flow positive companies with proven and scalable products and businesses.
If your company meets these requirements, you can apply for a stake in a VC company. It’s not the easiest thing to do, but many small businesses have done it successfully.
Your pitch is critical to getting funding. Sequoia, one of the world’s most successful VC firms, emphasizes: “You need to convey the main reasons why an investor should love your company in the first 5 minutes.” Sequoia partners say you can do this in three simple steps:
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The most important lesson here is that you have many options for financing your business. Don’t get discouraged if one doesn’t work. By doing your due diligence and being resourceful and persistent, you can raise the capital you need.
Meredith Wood is Editor-in-Chief at Fundera, an online small business lending marketplace that connects business owners with the best financing providers for their businesses. Prior to Fundera, Meredith was the CCO of Financial Gateway. Meredith is a regular financial advisor for the American Express OPEN Forum and an avid business writer. His advice regularly appears on sites such as Yahoo!, Fox Business, Amex OPEN, AllBusiness and many others.
Meredith Wood is VP, Marketing and Communications at Fundera, an online marketplace for financial solutions for small businesses. Fundera offers expert insight and customized options—from loans to credit cards to bank accounts—so business owners can make and compare financial decisions they often don’t know they have. Fundera works with business owners at every stage of their business, helping them evaluate the most appropriate financing options based on their current needs and suitability. Its combination of technology and financial expertise provides business owners with the smartest business decisions yet. Prior to Fundera, Meredith was the CCO of Financial Gateway. Meredith is a regular financial advisor for the American Express OPEN Forum and an avid business writer. His advice regularly appears on sites such as Yahoo!, Fox Business, Amex OPEN, AllBusiness and many others. He is a graduate of the University of Evansville with a degree in Theater Performance, Economics and Spanish. Fundera was acquired by financial advisory firm NerdWallet in 2020. The company is now known as Fundera by NerdWallet. Fundera is based in New York, New York.
This guest post does not provide tax, legal or accounting advice. The content is prepared for informational purposes only and is not intended to constitute reliable tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors before entering into any transaction.
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Of course, in times of economic expansion, it is easier to raise capital for a startup or new venture. Investors are incentivized to allocate capital to emerging companies because the return prospects are higher compared to other investment opportunities and downside risk is reduced due to the targeted costs and capital of clients.
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