It is an unspoken rule in the business industry - A great idea will only go so far without any external funding.
No matter how well established your business becomes with the savings you have, there are expenses that will eventually cross how much you can afford as monthly expenses. This is when you will find the need to raise funds for your business.
According to a recent study, it has been seen that more than 90% of businesses fail in the first year. Why? Because of a lack of funding.
You need to understand that money is the bloodline of any business. The long road of converting your idea into a money-making business needs a fuel called Capital.
That’s why you will find that most entrepreneurs find themselves asking the same question - How do I raise money for the business or finance my start-up?
Now the question is when entrepreneurs will ask themselves this question. Well, it totally depends on what type of business you have. Once you realize that you need funds to run your business, you find it hard to find the right method.
This is why we are here with this comprehensive guide, where we have talked about different methods to raise funds for your small business.
How To Raise Funds For Your Business?
When you have a great idea, and you know that if you are able to launch this idea into a business, it holds the potential of becoming the next big thing in the industry. However, the only stocking point that stops you from becoming great is the funds.
After all, you are not born into a wealthy family where you have millions of dollars at your disposal to risk a business idea. This is where you will think of attracting venture capitalists to invest in your small business or startup idea.
While some of the funding strategies you will be aware of, some might be new. Below we have listed down the top funding strategies businesses use to access necessary funds to expand their business.
Invest What Your Have
At the beginning of your journey, nobody will believe in your business success. Even if you can set up your business successfully and it is performing well, people will be skeptical about your success.
Hence, instead of just waiting for people to invest in your business, invest in your savings. Yes, this can be a risky venture. If you lose, you lose everything. But if you gain, there can be nothing better than that.
Convert Your Social Capital Into Finances
Once you have exhausted all your savings and have nothing to invest in, it is time to start converting some of your social capital. Social capital is the value of the close relationship you have with your friends and family in your life.
Because of this connection, they are more likely to listen to your ideas and show trust in your success. This is the exact strategy Chinese Billionaire Jack Ma used to kickstart the global eCommerce giant Alibaba.
Initial Public Offering (IPO)
IPO can be another way to raise funds for your business. IPO is highly effective because, in this method, there are several investors interested in investing in your business.
The reason why this method is successful is that no one investor is taking more risk than they can afford, even with a new small business.
While IPO is quite a successful method, there is an equivalent method called ICO - Initial Coin Offering. This method involves investors investing in your business using Cryptocurrencies; the rest of the process remains the same.
If you are interested in ICO, visit quantum ai to know more.
Get Advance Funding From The Customers
This is one of the few creative ways where you can expand your business without investing a single dollar in capital. Well, most of the success of these creative ways depends on what kind of audience base you have.
Getting advance payment from your customers is a way to finance your business. As we have said before, the success of this method depends on the type of audience you have.
If you are offering a solution that a customer will desperately have, they will be more than willing to pay in advance for the product.
Raise Money From Angel Investors
In the early days of your business, it will be hard to raise money by normal means like banks, loans, and investment firms. Because this is when you will have nothing in collateral. That’s where angel investors come in.
Angel investors are successful entrepreneurs or high-paid employees in big organizations. They are individuals who want to explore the business world from a different angle. You can take your idea to them and convince them to invest in your business.
Small Business Grants
The Small Business Administration sometimes offers grants to small businesses run by Veterans Women, or Minorities. If you fit in one of these categories, it is important that you talk with the local SBA to see if there is local grant money that you can apply for.
While this method might be there to help, it is still important that you know about the conditions to pay back the money. Yes, not all grants have stipulations and other complexities, but it's still good to know everything about them.
Some banks offer small business loans to entrepreneurs. While they do offer loans, this doesn’t mean you will get one easily. They are careful about giving teh loans and screen the owner carefully before accepting the application.
The only downside is that the rate of interest is pretty high. If you are not able to pay the loan amount, there will be legal action against you, which can destroy your career as a business owner.
No matter how confident you are with bootstrapping your business, history has shown us that not even a single company has ever become a billion-dollar company with only the business owner’s resources.
While you can certainly start with your savings and sustain your business for a couple of months or years. Eventually, you need external funding to expand your business.
This is where you need to have a clear understanding of each funding type and how it will affect your business. In this article, we have taken you through different funding methods to work with.
We hope that you liked the article and were able to get the answers you were looking for. If there is anything more you want to know about raising funds for your business or startup ideas, reach out to us. We will be more than happy to help you out.