Capital lays the foundation and the cornerstone for the functions of every business. Having more capital gives you more liberty to take decisions that can enhance the sale of the business.
However, unfortunately, the money you need does not grow on trees. Raising capital just like any other function of a business is a challenging task, especially for small businesses which usually start operations with a very minimal investment. According to research, 73% of small businesses use some external financing for their business.
Given the current economic climate, financing your business is not the easiest thing in the world. Therefore, to help you through the testing times of your business, we have come up with a list of ways for raising capital for your business.
1. Friends and Family
In your time of need, the first few people you look at should be your friends and family. Regardless of the issue, these people always have our back and are willing to risk their all to protect us.
There are varying opinions on raising capital with the help of friends and family. Many entrepreneurs believe that borrowing money from a close friend or relative can strain your relationship with the person in question. A loan can become emotionally draining for both parties, especially when the lender ends up on your doorstep every weekend asking for payback.
A relative not satisfied with the way you are handling the loan they gave you can create a very tricky situation. We have all come across cases where a verbal agreement between family members has led to confusion and chaos. To avoid such confusion and to ensure that your relationship is not affected, it is necessary to deal with the loan in a much more professional manner.
While consistent questioning about the time of repayment may seem annoying, you should still be grateful to your family members for helping you out in your time of need. You should respect the needs of the lender, just like how they respect yours. Additionally, you should also write down the terms of the contract and ensure that you adhere to it.
The way you ask a family member for a loan is also important. Rather than asking for the amount you need, ask how much they can give; the latter sounds more compassionate and civil.
The opinion held by most business experts regarding borrowing from family members may be correct in some cases. However, in cases where you have a deep bond with your friends and family, acquiring a loan from them may not be a bad idea.
2. Bank Loans
Another common way of raising capital is bank loans or loans from a financial institution. Securing a loan from a family member is easier than securing a loan from a financial institution. The terms of the contract are much more rigorous in a bank loan; not attending to the calls and needs of the bank can also lead to severe consequences for the business.
In addition to the rigorous terms of a contract, a bank will also go through your credit history to guarantee the loan they provide. A default in your previous loans may lead to the bank not offering you one. In case you have a poor credit history, check out services that provide loans, even when the borrower has a bad credit history.
Bank loans have the potential to solve the issue of raising finances for businesses as they offer services that other loan giving schemes usually do not. Additionally, due to the impact on the overall economy of the country, banks are encouraged by the State Bank of America (SBA) to provide loans to Small and Medium Enterprises (SMEs) on favorable terms.
3. Working Part-Time
If you need consistent sums of money to flow in your business for an extended period, working part-time or extra hours may be the right solution.
Most people aiming to start their own business look for a job initially. A job gives an individual the liberty to save for the startup. Once you invest your earnings in establishing the business, you can carry on working to raise finances for the routine operations of the company.
There is also much discussion between experts on whether a part-time job is suitable for a business. Many experts believe that part-time employment disorients the entrepreneur from the task at hand; juggling two jobs at once can be difficult and may lead to poor results in both.
However, some experts believe that it is not the job but the passion of the individual that drives a business. A passionate individual can handle numerous responsibilities in the hope that it results in the wellbeing of the business.
Additionally, you won’t always be working part-time for the rest of your life. As soon as the business is strong enough to stand on its feet, you can leave the job and focus primarily on the company.
4. Angel Investors
Angel investors, as the name suggests, are investors who fund a business operation. Angel investors are usually individuals or businesses with a net worth exceeding $1 million.
Getting in touch with an angel investor may be a complicated task. However, if you get an appointment, it is imperative to ensure that your business idea stands out from the rest of the ideas that are presented before the investors.
To secure the help of an angel investor, it is imperative that you have full confidence in your business ideas. Regardless of how innovative your idea is, it is the confidence that reflects in your eye which attracts the investor. Faith in a business idea is an indicator that the entrepreneur is willing to go the extra mile for the success of his plan.
There are more ways of raising capital besides the ones mentioned above. However, when looking for options to build finances, it is imperative that you don’t get too greedy. Keep in mind that taking a loan beyond your ability to pay may be equivalent to tying a noose around your neck.
by Bobby J Davidson
We love our company and we love what we do. Check out the ‘Why Percento‘ page to learn more: Love of Technology and Business! As the President of Percento Technologies International, I provide day-to-day leadership to the company’s senior management and I am personally involved in the strategy, business development and sales activities of the firm.
The company was founded in 1999 with the purpose of providing a one call source for organizations in need of Enterprise IT Consulting and Management. We also provide a line of products in the boutique Cloud Server space with a touch of high-end website strategy consulting and design services. We personalizes the IT Service experience with a team approach, working with clients from diverse sectors of industry, including energy services, financial, legal, entertainment, healthcare, hospitality, retail and general and/or corporate business. percentotech.com/