9 Ways to Raise Funds for Your Business
- Cutting costs is as important as raising money.
- Try to free or low-cost funding options first.
- Options that require no monthly payment while you're getting started are less risky.
Building a business is not easy. It takes great leadership of people, precise resource management, the compliance and regulations tightrope act, and to add to it, you put money into your business before you can take any out.
It can be challenging to meet all these requirements, but a talented entrepreneur can do them. All the talent in the world can’t help you; however, if you don’t know where you’ll get the money from.
Most people going out to start a business don’t have tens of thousands of dollars to put into it. If you do, or you can generate a lot of cash through other means, bootstrapping your business, or funding it with your cash, is a better option than raising capital. But assuming you don’t have that option, knowing the different ways you can raise capital for your start-up is vital. But before you even think about raising money, it is essential to understand what you will use that money on.
Saving Money is as Good as Raising Money
If you have a complex business plan, reviewing your plan to see where you could cut costs is a good place to start. For example, how could you get your supplies or labor at a discount? Where is the waste in your business?
The burn rate is how much money you spend on operating your business. A lower burn rate will allow your business to operate longer without additional investments and make money. For example, instead of opening your own office, you could participate in a business incubator program to take advantage of the lower overhead costs they offer for start-ups.
That doesn’t mean you should do everything yourself. On the contrary, employees are vital to a successful business, and often the best choice is to hire someone to do a job that you could but don’t have to, so you can focus your energy on activities that will make more money.
9 Ways to Raise Funds for your Business
There are many ways to raise capital for your business, but not every option is available to you or even suitable for your business. These options have been roughly ordered by how risky they are, which needs to be considered when starting your business, but keep in mind that any loan is risky.
One of the best ways to raise funds for your business is to get it directly from your customers. If you have a product or service in mind but aren’t sure it will be successful, you can create a pre-sale campaign to gauge interest. If your potential customers vote for your product or service with their money, then you know you have a viable product or service and the funds to make or deliver it with almost no risk.
If your business model allows for a pre-sale, this is one of the best options available for raising funds for your business.
While not applicable in all situations, some businesses can apply for grants to get started. For example, established organizations have contests or applications to give money to other businesses. If you meet their requirements, this is one of the best ways to make money because it is often given with no strings attached. Filling out applications is time-consuming, but it isn’t as guaranteed as a loan, so don’t spend all your time doing this. The Small Business Administration (SBA) grants are a great place to start for this.
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3. Networking and Strategic Partners
While networking isn’t directly asking for money, it’s an important part of raising funds for your business. You never know what the person you talk to knows. That’s why it’s so important to talk to many people. Networking can help you find strategic partners who can help you get off the ground with minimal costs. Even a local chamber of commerce can give you access to discounts and more.
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4. Equity Crowdfunding
Equity crowdfunding might be an option if you aren’t looking to get a huge debt service payment. Since someone looking for equity in a growing company isn’t looking for immediate cash flow, you can get an influx of cash without paying monthly or accruing interest throughout the process. Investors who are looking to invest in equity crowdfunding are looking for a good business pitch, so yours had better be solid.
Crowdfunding is a great way to get money into your business quickly because there isn’t a huge application or review process to get funds fast. Keep in mind, however, that if you don’t take the equity crowdfunding route, you’ll probably need to make payments on the loan, and rates can be high because it is risky for investors.
6. Small Business Administration (SBA) Loans
If you need a loan to build your business, the first place to look is the SBA offers competitive rates, longer terms, and cheaper money to small businesses. If you can qualify for an SBA loan, that's the way to go. Most banks can help you get an SBA loan.
7. Bank Business loans
If an SBA loan is not an option, then a bank loan is another option. You may get very generous business loan terms if you’ve built a relationship with a particular bank. Some people even use personal loans to start a business, but remember that any personal recourse loan in your name will stick with you, even if your business fails.
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8. Angel Investors
An angel investor is a person who has a lot of money that invests in small businesses. To meet angel investors, you need to do networking. Angel investors will often require large amounts of equity or cash flow from the business once it is up and running, but if they are patient enough, you can often get through the start-up phase using their money without paying monthly payments to them. These are great investors to bring on, but since it is an agreement between individuals, it is vital to have a good lawyer involved in writing the contract.
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9. Venture Capital
Lastly, there is venture capital. Venture capital is much like an angel investor, except the investor is a company. If you can get venture capital to invest in your business, that’s a good vote of confidence. However, there is a lot of potential to lose your business if you don’t perform, so this is a very high-risk option.
The Money Wrap-Up
Raising money for a business takes a lot of effort. You need to be ready to hustle hard and trade cash flow or equity in return for the funds to get your business off the ground. The best option is to always start with the lowest risk. If you can bootstrap your business without getting any financing, you will be in the strongest position when your business finally gets rolling.
If that isn’t an option, then grants and low-cost funding options should be pursued next. Once these are exhausted, you can look into higher-cost and equity-sharing options. Whatever option you take, remember that the goal is to get your business profitable with the least amount of cash flow or equity given up.
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