At the startup phase, a business’ major concern is raising capital to fund its operations and growth prospects. At this stage, a business is yet to establish itself. Hence both the business and financial risks are quite high. No one is willing to join you in the business at this level. Providers of credit are not willing to extend credit services to you because your credit rating is low. Equity investors are also not ready to buy shares from you since you are still struggling to implement your business plan. However, you can still get capital for your business through other means. Here are a few ways to raise capital for your small business.
The major source of capital for your small business is your savings. You need to increase what is called the owners’ liability in the business so that you have enough capital for the business. If you have made some profits previously, you would like to plough them back into the business to fund growth prospects. You have to give your business a strong financial standing yourself before you look for funds elsewhere.
You can also raise capital for your business through equity. We just noted that debt is very expensive. The cheaper option is equity. You can give relatives and friends a stake in the business so that they can help you fund its operations. Notice, however, that your business plan needs to be attractive enough to make people ready to partner with you. One disadvantage of equity as a source of capital is that the more shares you sell, the less is your stake in the business. You will also not be able to run the business on your own the way you used to run it before. You have to consult your shareholders before you make important business decisions.
You can also get capital for your small business from venture capitalists. These are wealthy investors who identify startups with a huge potential for growth and invest in them. Articulate your business plan and outline your long-term growth prospects to qualify for funding from venture capitalists. One advantage with these investors is that you may not even have to look for them. As long as your business has long-term growth potential and it is in line with the growing technologies in business, venture capitalists will come looking for you.
If personal savings are not enough, you can always borrow money from friends and relatives to raise capital for your business. You can also approach banks and other institutions for credit. One problem with debt as a source of financing is that it is very expensive. You have to repay the loans taken together with exorbitant interests. Moreover, defaulting on the repayments will take you from the frying pan into the fire. Therefore, do not bite more than you can chew when it comes to debt. Take the loans that you can comfortably repay in due time.
Get Trade Credit
Last but not the least, you can also look for suppliers who will let you buy their goods on credit. Goods bought on credit are considered to be capital for the business. When you sell these goods, you can repay the suppliers and retain your profits. This way, you kill two birds with a single stone.