5 Easy Ways to Raise Startup Money for Your New Business
Many entrepreneurs don’t start working on capitalizing their business early enough. They imagine that they’ll start the business and get the funds quickly. Obtaining funds for your new business could take several months, so the process should start as soon as you have a business idea.
Among many reasons, most businesses don’t survive until their fifth birthday due to lack of capital. Without sufficient funding, your new business will struggle to stay afloat. Various capital sources are on the market. You simply have to figure out which one is suitable for your business. Here are 5 sources of capital for your business:
Prior to looking out to supplementary sources of capital, as a new entrepreneur, you should personally contribute some money to your business. You ought not to only look to outside sources. Other investors or banks will be curious to know how much you’ve invested yourself. They will take you seriously if you take yourself seriously.
Here are a couple of ways you can come up with money from your own pocket for your business:
Several months before setting up your business, you ought to be strategizing and cost-cutting. This will guide you in designing a monthly savings arrangement that will kick off your business. Use direct transfer to your savings account to help with this.
- Home Loan
You could use your home as security for credit to capitalize your business. However, you will lose your home if you can’t make your monthly payments promptly.
- Asset Disposal
Analyze your assets and figure out if you could sell one of them to support your business. This could include real estate, equipment and expensive artwork.
- Credit Card
This is a costly method to plough money into your startup but a number of successful business owners have used it successfully. With a great credit score, you are able to get lower interest rates.
- Life Insurance
You are able to get a loan against your life insurance. The amount should be to the value of your insurance. You don’t pay this back. The amount borrowed is deducted from the total when you die. Unfortunately, there is compound interest and taxes involved.
- Involve Your Friends and Family
Friends and family are more accessible than anyone else. So, asking them to invest wouldn’t be a bad thing, right? This form of funding has its benefits but it can also be tricky. The subject of money has been known to break up friends and estrange families. For example, if you’re not able to pay them back, your relationship may never be the same again.
You can go about asking them for money by presenting them with verification of your own capital in the business. They’ll be more inclined and eager to invest as well. Show them your business plan and forecasts. Tell them exactly how you intend to utilize the money and what risks are involved.
Some strong points of friends or family funding are:
- They may not charge interest, or if they do it will be really low
- They will be more understanding and willing to wait longer for payment
- They are less likely to ask for security
If they are interested in moving forward, get a lawyer to draft each party’s commitments and obligations in a funding agreement. Family or not, formal contracts must be drafted because this is business. Lack of properly documented agreements will cause disagreements, leading to tension and may potentially ruin your relationships.
- Bank Loan
In recent years, banks are increasingly rejecting startup new bad credit personal loan applications because they consider them a risk. They believe that new entrepreneurs are inexperienced to run a successful business, lack a solid team and have a low or no customer base to support the business.
Since hiring a competent team and acquiring customers depends on funding for the business, startup owners are left stranded most times. A sure way to get banks to listen to you is by creating a detailed business plan that answers all their concerns. For example;
- Have you made a financial contribution to your business? Or are you planning to? How much?
- Do you or any of your partners have management experience? Do you have experienced managers on board? Will they make profits in your business?
- What is your collateral?
- Have you included your credit reports?
Crowdfunding has in recent years become a popular source of funding for new businesses. A total of $ 34 billion was raised in 2015 throughout the world in crowdfunding. It works via the internet where hundreds or thousands of people contribute small amounts of money to fund a business.
You can successfully finance your startup with crowdsourcing in these steps:
- Determining what your funding goal should be is the first step. Some crowdfunding platforms operate in a way that if you don’t reach your set goal, you forfeit all the money.
- Come up with an appropriate reward to motivate your backers.
- Choose a platform for your campaign and post it preferably with a video. There are several platforms to choose from including Kickstarter, GoFundMe, Indiegogo and Patreon.
- Online social engagement is important. Your activity on social media has an impact on getting funded through crowdfunding.
- Get your money and set up your business
Crowdfunding is a good option in such a way that you don’t have to surrender any shares of your business to investors. Also, as long as rewards are promptly given to funders, they’ll be excited about taking part in your next project.
- Angel Investors
These are wealthy individuals who invest in startups for shares in the business. They are normally experienced in the world of business and not only do they provide funding but guidance as well. 90% of all startup funding is from angel investors. There are now the go-to source of funding for many startups because of the following:
- Their guidance and mentorship from years of experience
- They are likely to keep investing over and over again
- Less stringent terms
- Connections through investors’ contacts
The number of angel investors is growing every year and entrepreneurs have a large pool to choose from. However, not all investors will match your business requirements. So, finding the right angel investors is important. Consider the following:
- Their successful exits with former investments
- Their level of experience in your industry
- They should preferably be within your geographical location
- What level of funding can they invest?
Cash flow is the lifeblood of any business. Entrepreneurs must plan way how to finance their startups. Depending on the type of business, you may choose one of the above ways of financing. However, you may also find that more than one method is suitable for you. Whichever source you choose, elaborate planning and a solid strategy will quickly get you the financing you need.
Read Also: Samples of Business Plan