Finding capital is one of the biggest challenges a business owner can face. It needs to be done when the business is starting up and it also needs to be done when the time comes for the business to grow and expand. Sourcing capital is not the only consideration a new company faces. You need to look at a number of areas from how to structure your company to whether or not you need a business plan. It can be difficult to know where to start. Download our free eBook – an Introduction to Starting your Own Business – to find helpful tips on what to look at when first starting out.
Outlined below are the main ways in which people find capital for their business.
Banks
The most straightforward and commonly used way of raising money for a business is getting a loan from a bank. This is pretty straightforward for a business that is already up and running and looking for money that will help it to grow and expand.
The process might be long and complicated, but as long as you meet all the necessary requirements, it won’t be long before your loan goes through. Then you’ll have the money you need for the business to expand. There’s a good reason why it’s such a popular way of finding capital: it’s safe, secure and relatively easy.
Incubators
Different organisations and agencies offer incubator options to young entrepreneurs. These incubators help start-ups to grow and expand as they’re just starting out. They are only suitable for businesses that are just starting out. They’re not the solution for existing businesses that are looking to raise funds for an expansion or improvement to the business. There is a lengthy application process that the business owner will have to go through before being accepted.
Venture Capital
For start-ups and small businesses, venture capital is still an essential source of financing. They work by investors providing money to small businesses that they see as having long-term growth potential. The risk for the investor is huge, but the rewards can be huge too. This makes it pretty simple to find backing from a venture capitalist, as long as you can show them the potential of your business. Some of the venture capitalists out there will offer managerial and technical support to business owners. Either way, venture capital is something every business owner should consider.
Peer-to-Peer Loans
If you’re looking for a way to borrow money without going to a banking institution, peer-to-peer lending might be an option for you. Instead, ordinary people act as lenders. These are often investors who want to make some money, but there is a risk involved for them. For you, as long as you get a loan with a good interest rate, the risk is lower. These peer-to-peer loan deals are found on specific sites that deal with matching up lenders and borrowers. This offers some regulation and oversight to the people on both sides of the deal.
Crowdfunding
Crowdfunding is a relatively new phenomenon and it offers an interesting way to raise money for businesses. It works by setting up a pledge on a website like Indiegogo or Kickstarter. You then appeal to ordinary people to invest their money for a return. It could be shares in the company, for example. You have to outline a specific monetary goal, and some sites will not let you raise more than that goal. The different websites have different rules, so you’ll need to make sure you fully understand them before you begin and choose the right one for you. And then you’ll have to get creative to find success because many campaigns fail.
Float the Company
Floating your company means making shares of your company available for purchase by investors. This then means that a chunk of your business will be in the possession of other people but the good thing about it is the fact that it allows you access to new capital. Raising money is one of the main reasons why businesses are floated by owners. The money raised from the selling of shares is usually used to improve or expand the business, but you can do whatever you see fit. The other benefit of doing this is that it will give a boost to the reputation of the business.
Angel Investors
Some very wealthy individuals like to invest in businesses. Some will help them grow, and others will sit back and let you take control of the business and use their money wisely. These kinds of investors are known as angel investors. This kind of solution is ideal for people who are struggling to find capital from any of the other ideas discussed above. If the angel investor you find has knowledge of the industry and some useful contacts, you might get more than just a pile of cash. It’s not always easy to find one of these investors though, so you’ll need to do your research and appeal to them directly.
