Today I will share with you four simple ways to raise capital for your home-business or startup. When starting a business one of the first things that is required before starting to operate is capital. There are a variety of ways to raise capital, with each different way having their own pros and cons. However, not all options are suitable, and some are riskier than others, with that being said, there is no perfect answer and it all depends on the circumstances relating to your business.
Bank Business Loans
A bank loan is one of the most popular ways to raise initial funds. For startups, it must be noted that often a form of collateral must be put up against the total amount in case of non-repayment. Also with having to pay interest on the loan, and repayments having to be made regardless of the profitability or financial position of the company, it can be risky to commit to a loan early on if no revenue or cash flow is stable.
For those requiring a small amount of capital, a bank overdraft may be suitable and should be fairly easy to obtain. However, be aware the interest rates are higher than loans and repayment can be demanded at any time.
The most common way of financing a business; the owner putting the money in themselves. While benefiting from no repayment dates or further interest, it is at great risk to yourself. This is especially true if you are approaching retirement age and need savings in the near future. However, without the need of investors all profits be your own, but on the other hand so is the risk.
Getting outside investment through the form of an angel investor or venture capitalist can be difficult, but not impossible. I highly recommend, before you meet with potential investor(s), you have a proven business plan or an idea and ability to show potential. Otherwise, most likely investors will pass. However, if everything is in place and you are able to gain their investment you would benefit from their expertise and industry knowledge. Something to keep in mind is that with their investment comes their expectation of control, you may find the investors ideas for the direction of the business is different from your own, or that they want a high percentage of profits.
A more modern approach to raise capital, suitable for those with an idea or prototype product, and need the belief of potential customers to invest before the idea has come to fruition. Through this method no repayments are needed to be made and significant amounts of funding can be raised. However, without something that truly captures the imagination of the audience it can be difficult to raise the threshold amount. Also failure to deliver with severely damage your brand and reputation.
Remember, there are a wide range of options to raise capital but due diligence is required to be done before coming to an agreement. If an agreement has been made for any amount of investment, it is wise to take legal advice before finalization.