Need to raise some fast capital to build your business? You are definitely not alone. Every month, some 543,000 small businesses are started by people just like you with big hopes and dreams. In the earliest phases of developing a business and during times of expansion, the most common complaint is struggling with raising business funds.
Let’s face it; very few people are born with a wealthy benefactor or have access to an unlimited supply of money. This can either hold you back or motivate you to find your way to the finances you need as an entrepreneur. Truth is, building a business is going to be the single most difficult and rewarding experience in your life. Letting a little thing like cash get in the way is not an acceptable excuse for not trying.
Fortunately, there are many ways to raise capital for your small business. We’ll start with some of the traditional methods of increasing your cash flow, and then surprise you with some more modern ways. But first, let’s determine how much capital you need, which will then guide you to the right sources of additional money.
To determine how much you will need to beg, borrow, and [ahem] not steal, and what sources will be the most promising for you, determine three very important things:
So to explain, if you are in the earliest stages of starting a business, you need to know how much money you already have from personal reserves and its purpose before heading to an outside source. The difference between the two determines how much additional capital you need to obtain.
Consider when you might need the money too. Are there alternatives like renting a piece of expensive equipment for a time, or hiring someone to work part time until you can afford to bring them on full time? Remember it takes a lot of creativity to start and run a successful business.
The most common way that entrepreneurs raise capital to fund their business ventures is by bootstrapping their way to success. According to Neil Patel, well known in the world of marketing, bootstrapping means relying on your own savings and revenues to operate and expand. Patel shared the story of Jon Westenberg the founder of Creatomic who started his email marketing platform by initially offering email writing services. He used these meager earnings to build his platform, which was generating $20,000 per month as of the last post.
Some ways to bootstrap include tapping into personal savings, getting all your friends to pay you the money they owe you, borrowing funds from a retirement savings plan, selling things of value, and putting some expenses on low interest credit cards. Or you could use a similar idea as above and start a service that compliments your business and start charging for it while you build a client list.
This is a traditional way of raising capital for a business, but it’s still effective if you have a support system around you that believes in you. Interestingly enough, many young people are forgoing college and instead using their would-be college savings to start a business. For those who know they are destined to become entrepreneurs, there can be no doubt this is the right path to take.
Friends and family can be great sources of not only start-up capital, but also long-term capital. If you can start a business on a shoestring, and work out of your home (or your parents’ home) just imagine how much you can save on overhead and invest into the business. While it can be good to moonlight a couple of business courses in your spare time, your family can be there for you when you need a little extra push in the right direction.
Another way of increasing your capital is to barter for some of the things that you need. This increases your ability to operate and grow your business, freeing up available funds for things you must pay for. Let’s say you are a marketing firm trying to fund the costs of a new CRM, but it’s cost prohibitive at this time. You meet a colleague who is in serious need of content marketing, but also doesn’t have the budget. However, he does have access to a sweet CRM that he is willing to let you set up with an administrator account on, in exchange for some help in the marketing department. No cash is ever exchanged, but set up a simple written agreement and go from there.
Other types of bartering can include equipment trades, office shares in exchange for answering the phones on certain days, and even borrowing a vehicle in trade for some delicious cupcakes your shop makes. Seek out trustworthy entrepreneurs and ask if they are open to bartering.
A similar arrangement and way to increase capital is to accept support from a partner. Combining resources and funds can help more than one business to thrive. When two NBC producers in New York City saw the writing on the wall, they took a chance and co-founded what’s now known as TheSkimm, a wildly popular email news source with over 1.5 million readers. Danielle Weisberg and Carly Zakin even moved in together to cut expenses and focus on this endeavor full time.
Entrepreneurial partnerships are popular and can work out fantastically as long as both parties know what they are getting into, agree to the terms, and put in their fair share of the work. There can be various types of partnerships too, which makes them adaptable. Some partners prefer to stay on as an advisor in the background. Others take a more active role and share their ideas about the business direction.
Just be sure you actually like this partner, because you will feel like you are married to them for a while. Have an escape strategy in case things don’t go as planned.
Thanks to the internet, it’s no longer necessary to shake down your friends and family members for the capital you need to start a business. Instead you can ask perfect strangers to fund your dreams. From micro-loans to crowdfunding, there are many avenues for raising capital. Seek out crowdfunding companies that have good reputations, reasonable fees, and a high rate of return. Study some of the campaigns of the top funded ideas and learn from them.
To get the best results, you must share your heart and your best ideas with others. While this can seem very personal, consider that people are taking a risk on you. Write a compelling story (be truthful) about why you are starting this business, how it has the potential to help so many others, and what you plan to do with the money. Remember that you will likely have to pay people back or offer them a chance to have first access to your new product or service.
A more traditional way of raising business capital is to seek out funding through a variety of grant and loan sources. There are many grant programs for disadvantaged and minority business owners, as well as free programs to train you on how to start and grow a business. Most of these are funded by the U.S. government and you can find out about them at the Small Business Administration. There are also lists of places you can find small business loans, such as this one at Fundera. With grants, you must meet specific criteria, must detail how the funds are to be used, and many fall within high growth areas like STEM industries.
The Small Business Administration also provides access to many loan programs. The SBA advises that almost 75 percent of financing for new businesses comes from loans, credit cards and lines of credit. While the SBA may be the first stop for a loan, it’s certainly not the last.
One of the best ways to obtain a business loan is by asking at the bank or credit union you already do business with. Check out rates online and then apply for loans with the lowest interest rates and easiest repayment terms. There are also banks that operate solely online and have no brick and mortar location. Because they keep their overhead down, they can approve business and personal loans faster. Just remember to shop around and do your due diligence before agreeing to anything.
There are two types of investors you may be interested in approaching as an entrepreneur. An Angel Investor has a boatload of cash, but wants to remain silent in exchange for partial ownership of the business. You still have the say over what happens, but you must generate healthy revenues or risk losing this investor’s support. Have a solid pitch and a business plan ready to present.
The other type of investor is a Venture Capitalist who normally seeks out established businesses that have a track record of growth and projections to continue this growth. If you have ever watched “Shark Tank” then you know how this works. Business owners present their ideas and financial estimates to potential VCs and then hope they get the best offer. The stakes are high, but the capital is flowing.
Here’s a little hint: If you want to increase your chances of being noticed by an investor, make sure you have an active crowdfunding campaign. If it’s performing well, this will attract VCs to you like bees to honey!
Whether you have a day job now and this business idea is just an idea, or if you have already launched it -- it is time to get visible to corporations out there. To do this, you must develop a strong professional brand. One of the most effective ways to do this is to market your best self to the masses. Use channels like YouTube, Facebook, and Patreon to develop your brand persona. This will take a great deal of effort, but if you do things well, you can end up landing some lucrative sources of revenue. An example of this is an entrepreneur who started out doing makeup reviews and tutorials for the non-traditional transgender community. Now, he’s known by his trade name, Jeffree Star, and rakes in billions in advertising fees every month.
Consider what you have to offer in terms of uniqueness of your ideas, approaches to things, and what you are hoping to achieve. Market your business and yourself well. Use a blog platform combined with social networks and tap into video marketing to make yourself more present to others. You can easily land affiliates and corporate sponsors willing to pay big bucks just to have you mention their products and services or run small ads on your blog.
So there you have it. These are our eight traditional and not-so-traditional ways to reel in the cash for your business. While these are not the only ways to accomplish the goal of raising business capital, these are some ideas you can run with immediately. Work on trying methods that don’t cost you much in terms of money up front or interest and repayment fees later. Never take on too much risk up front (like mortgaging your house - dumb idea!) Seek out others in your family and community who understand your dream and are willing to support you. Shake every bush and look behind every opportunity. There is plenty of money out there just for the taking, so get out there and find it.
For further reading on your path to financial freedom, download this free E-Book.