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Raising capital for your small business can be tough. Indeed, one of the greatest challenges for any entrepreneur is that of raising capital. The term ‘capital’ in this context relates to the amount of money required to get your business off the ground.
There are a number of ways you can reduce the amount of upfront capital you require, as an example, let’s say you were in the construction industry and required ground engaging tools, perhaps you could share these tools with another company and split the cost between you, purchase second hand equipment, or subcontract the task to a company or person that already has the equipment required – meaning it will be more positive from a cash flow perspective.
Essentially, when setting up a business you want to look for as many ways to reduce the amount of capital you require as possible; but this must be balanced with the needs of the business – as scrimping on certain fundamentals can end up costing you a lot more in lost time and productivity that you lose out on a lot of revenue; so you’ll need to balance the notion of keeping initial start-up costs down with a longer term focus.
Raising capital can be a scary process – often people have an idea in their mind they will have to go before a panel of investors and be grilled about their business, but this isn’t always the case. In the majority of circumstances, it’s a friendly one-to-one chat where you can also receive a lot of constructive advice about your business.
That said, raising capital can be very time intensive. There are a number of ways you can raise start-up capital; this article will look at the three most accessible for the majority of entrepreneurs.
Friends and Family
First off, the most ideal place to look for finance is your savings account – however, presuming you’re some way down the road of turning your dream into reality, there’s a good chance your savings will be depleted – meaning you might have to turn to friends and family for a little support.
If you have people close to you that are willing to back your business for a small incentive (such as interest on the loan) this is one of the cheapest and most convenient options – however, borrowing money from friends and family that is then riding on the success of your business can put an enormous amount of pressure on you to perform, and if you’re business were to go under, then so could these connection. It’s therefore worth considering the potential strain put on your friendships and familial bonds in the long-term.
Get a Business Loan
The most traditional route for setting up a small business is to get a small business loan. This is probably one of the most easy and independent ways of financing your business, as you retain control of your company, in that you aren’t having to give away equity to external investors.
Unlike professional investors, however, you won’t get that much hands on support from your bank… as they aren’t really motivated or incentivised to have your business become a booming success; their focus is merely on you repaying the loan. Therefore, if you’re looking for a little more support in addition to up front capital, you might want to consider seeking out angel investors.
The alternative to getting a business loan, of course, is to utilise a zero percent credit card in order to facilitate initial cash flow… just be careful with this, though, as it can be a slippery slope into substantial debt.
The other option that’s accessible to most people is that of crowdfunding where you pitch your idea via an online platform and strangers can offer chunks of cash to back your idea, often in return for an incentive (such as a substantially discounted pre-order of your product).