Many entrepreneurs do not know where to acquire funding when starting out or
expanding. If you know where to look, you'll find that there are many different
sources for entrepreneurs to raise capital.
However, not every source of capital is suitable for every business. An
entrepreneur should choose one which meets the capital structure that best fits their
business. A business' capital structure is the way that it is funded, either through
debt (loans) or equity (shares sold to investors) financing.
Financial backing usually includes loans, grants, or investor funding. Some of the
top ways to raise capital are through angel investors, venture capitalists,
government grants, and small business loans. There are other methods for
financing such as credit cards or invoice financing, but these should be used only if
you need cash quickly and know the risks involved.
Angel investors are generally individuals or groups who provide capital from their
personal assets to assist you with starting your business. These types of investors
are looking for startups that have good potential for earnings.
Since they are investors, you'll be expected to present them with a portfolio that is
favorable. This differs from venture capitalists, who are more interested in
organizations that are already doing well but need more sources of capital.
Venture capitalists (VCs) are usually groups of individuals that provide capital
through an organization they have established. Generally, VCs like to fund
companies that are already somewhat established, and in need of more finances.
However, VCs have been known to sponsor startups that show significant promise.
VCs are looking for high returns on their investments (your business). This is not
unusual for investors, but some VCs may want to be involved in your business
decisions after they grant you some funding.
In the past, VCs have wanted to make decisions for the businesses they have
funded to protect their investments. However, many VCs have moved to more of a
mentor role, assisting you with business decisions and offering guidance as a
protective measure. Ensure you enquire about the role a VC would like to have
before you accept any funds. If you do not find any suitable VCs, a small business
loan may be the next option.
Small Business Loans
The Small Business Administration (SBA) has been established to assist business
owners with their businesses. A small business loan through SBA partner lenders,
while competitive, are guaranteed by the SBA and come with generally lower rates
than traditional loans.
Small business loans are not the only form of government assistance. A source of
capital often overlooked by entrepreneurs is government grants.
The government offers grants through the SBA to entrepreneurs who have
research-related businesses. The most attractive benefit of a grant is that it is free
and you won't need to repay the government.
Crowd funding is a method of raising funds from individuals, using an internet-
based platform. This method depends upon the generosity of people, and upon the
exposure your crowd funding campaign receives.
To have a successful crowdsourcing endeavor, you must be able to win the crowd's
support. They'll want to know why you need the money and may want a reason to
contribute. Create a reasonable monetary goal, and decide on a reward for the
crowd that assists you. This could be public recognition for donations or letting
them be the first ones to receive your product.
These are small loans designed for small businesses and startups. What makes
these loans attractive is that they are short-term loans with low-interest rates
compared to traditional small business loans.
Sometimes referred to as invoice advances, invoice factoring is a process where an
entrepreneur agrees with a lender to sell their invoices due, and let the lender
collect future payment by the customers.
This works by a lender purchasing your open invoices from you for a reduced
amount, then collecting the amount that is due.
Many companies use personal and business credit cards to finance immediate
expenses. Credit cards are convenient when you don't have the cash to make
purchases at the moment.
If you do not have the means to make your monthly payments, credit cards can
exponentially increase your debt with high annual percentage rates.
Some aspiring business owners have financing methods right at their fingertips but
don't realize it or aren't willing to make the plunge. If you can bear to part with
some of your possessions, selling one of your assets (such as a car) can help you
attain the cash you need to start up a business.
Royalty financing or revenue-based financing, is an equity investment in future
sales of a product. Royalty financing differs from angel investors and venture
capitalists in that generally you have to be making sales before approval.
Investors will expect to begin receiving payments immediately as a result of the
agreements made with the lender. They provide upfront cash for business
expenses in return for a percentage of the revenue.
source: Jannath Chowdhury