One of the greatest challenges for any entrepreneur wanting to start up their own small business, in addition to building up a credible reputation as the business owner, is to raise capital that will allow them to take things to the next level.
The term ‘capital’ in this sense, relates to the money required in order to launch the business.
There are two main arguments when it comes to startup capital; on the one hand it pays to be conservative in your start-up requirements as the less you require to raise, the more likely you are to achieve that amount – particularly as most entrepreneurs either look to borrow money from a traditional bank, their friends and family, or with investment from external investors.
However, something to be mindful of is that one of the key reasons small businesses fail in the first few years is due to being underfunded which leads into cash flow problems, meaning the business is not able to keep its head above water and make ends meet.
Entrepreneur’s face immense emotional pressure and work very hard, blissfully ignorant to the fact the odds are so heavily stacked against them turning their vision into a reality and developing a business that leads to sustainable success. Some could say they are like modern day explorers, setting off on a journey into a stormy and perilous sea in pursuit of new riches. However, without capital behind them, the chances of getting out the harbour are incredibly slim.
This article, therefore, looks at three of the most common suggestions for raising capital as a start-up business.
GET A BUSINESS LOAN
The most traditional route for setting up a small business is to get a small business loan from a finance company such as Smallbusinessloans.co. This is one of the most easy, reliable, and certain ways of financing your business. You keep complete control of your company, as you aren’t having to offer equity to external investors, who each get a say in how your company is run – and convincing one person, is a whole lot easier than going around investor meetings.
FRIENDS AND FAMILY
If you have a wealthy relative, or several friends and family who are open to backing your business for a small incentive (such as interest on the loan) then this can be a great option, as it will cost less and be easier to arrange than commercial financing; however, borrowing money from friends and family can be a very stressful experience that totally changes (and sometimes annihilates) friendships. It might be worth considering the potential strain put on your friendships should the business not turn out to be a success.
A recent trend in raising startup capital is that of crowdfunding; where you pitch your idea on an online platform such as www.crowdfunding.com and strangers can offer bits of cash to back your idea – but these ‘bits of cash’ can accumulate to several million dollars.
In summary, you have three main options; raise money from a commercial source such as a bank, raise money from friends and family, or raise money via crowdfunding. Whatever route you decide to go down just make sure that your cash flow projections are realistic and that you are asking for as much as you actually need.