The old adage “You must spend money to make money” is truer more often than not. To grow your business, to increase your sales, to expand your services, or to broaden your reach, you often need to invest money.
In our most recent blog post, we talked about what capital is, when you need it, and how to determine how much you need. That may be helpful to know, but it is useless knowledge unless you know how to raise capital, too.
What if you don’t have extra money personally or from your business to invest? Where do you find the capital you need to increase the value of your business?
5 Ways to Raise Capital Funds
- Private Equity - Self Funding
Sometimes referred to as bootstrapping, because you are figuratively picking yourself up by your bootstraps, you can invest your own hard-earned savings into your business.
Maybe you have built up a sizable nest egg over the years. Perhaps you have come into an inheritance or made a lot of money by selling a novelty item you owned. As long as the money is yours, you can use it however you want — no restrictions.
However, if you leverage your own financial resources to support your business, you risk losing all of the money you invest, too.
- Private Equity - Family and Friends
If you need more funds than you currently have available or if you want to divvy up some of the financial risk you are taking, you can ask your family and friends for private equity to raise capital for your business.
Usually, your family and friends will not ask you for a share of your company or principal and interest repayments in exchange for the money they give you, but make sure you get that in writing. If terms and conditions do apply to the money your friends and family members give you, spell out exactly what is required, when it is required, and how it is required to avoid hurt feelings and future conflict.
If you do not have access to private equity, you can ask groups of people on internet platforms to donate money to your business. Essentially, you can launch a virtual fundraising campaign for your business!
Patrons on these websites, crowdfunders, often want to support small businesses, fund creative works, or subsidize unique state-of-the-art products. They want to support genuine people who would otherwise have no chance of making it big in business.
Therefore, use crowdfunding to “sell” yourself and your business. Put up photos and videos about what you do and what you hope to do. Give the reasons why you went into business and what you want to accomplish through your business.
If you use Kickstarter, Rock the Post, Indiegogo, AngelList, or another platform for crowdfunding, read all of the fine print to understand your financial and legal obligations. These patrons are not technically investors because they are donating money to your business, not investing money into it for an ownership stake.
Although you do not give away any control of your company’s ownership or management through this fundraising platform, funders usually expect a small “gift,” like a sample of your product or their names in your business credits, for their donations.
- Venture Capital
If you have ever watched the show Shark Tank, you are probably familiar with the next way to raise capital. With a business plan that outlines how much money you need and how you will use it, you can pitch your ideas to individual investors known as angel investors or to a team of investors known as venture capital firms.
These venture capitalists are willing to take high risks on business ventures in exchange for potential high returns. Their cost? An ownership interest in your business. They are not loaning you money for you to pay back a debt; they are investing in you, in your business, and in your vision for your business.
Venture capitalists expect a return on their investment into your business, so they usually demand an active role in your company’s business plans and implementations, which requires you to give up some ownership and some control of your company.
- Small Business Loan
Maybe you aren’t ready for a venture capitalist. If you want to buy a specific piece of equipment, purchase products for holiday sales, manufacture a huge customer order, provide services before payments are received, pay employees, or launch an advertising campaign, try applying for a loan through a bank or credit union.
If you have historical business financial statements that show performance stability and predictability, if you have written business plans that describe what you plan to accomplish with an influx of cash capital, if you have expense reports that detail how you will spend capital, if you have multi-year financial projections on your business, and if you have fairly decent personal credit, you might be able to get a small business loan through a bank or credit union to access immediate cash capital.
If a bank thinks your business is too risky to lend money to, you can apply for a loan guarantee through the U.S. Small Business Administration (SBA). The SBA even offers loan and incentive programs for certain small business owners of certain ethnicities, genders, or socioeconomic backgrounds. If that other party — the SBA — assumes the risk for your loan, a bank is often willing to make your loan work.
Start Raising Capital!
Raising capital for your business doesn’t have to be stressful. We have walked this road ourselves, and we are more than happy to walk you through it.
With capital, you can invest in your business. As you invest in your business, it becomes more profitable and more valuable. And when it grows, your business’s capital worth expands. We’d love to show you how it works!