Launching a new business requires much skill and preparation. Entrepreneurs may
not have the resources to raise capital in order to market their new business ideas;
therefore, some great business
ideas never become commercialized. This is a common dilemma that many entrepreneurs
face. They often speculate about how to raise capital and same time, are unsure
about how their startup will have the needed financial security to properly stay
on track. Before a new business owner can raise capital for their startup, they
must first identify the different sources of funding, find one that is most compatible
with their needs, and then meet the given criteria of the investor or bank. These
crucial steps can mean the difference between having the opportunity to successfully
raise capital and leaving their new business ideas behind.
Research- Entrepreneurs are encouraged to first investigate their
funding options and conduct comprehensive market research to fully understand their
potential targeted consumer base and any major competitors. Such information can
be readily available both online and offline.
The information superhighway
The internet has become the fastest and most efficient means by which a
new business owner can perform market research and find out
ways to raise capital. One important website to visit is the Small Business
Administration (SBA) (www.SBA.gov), which can provide the necessary facts and resources
needed for starting their new business. Every entrepreneur should take advantage
of this valuable online resource so that they can become aware of all the different
types of funding available. They will also be able to learn about how to meet the
desired criteria in order to effectively
raise capital for their new business.Â
Offline resources
In addition to online resources, new business owners can also visit the
public library or read through the local newspaper to find out more information
on how to raise capital. The prospective business owner can also speak to successful
entrepreneurs who have experience in the field. Since experienced entrepreneurs
have been through this process already, they can provide a wealth of information
to the new business owner. The entrepreneur can also build a network of contacts
through them, receive constructive advice, and find out how they can raise capital
for their new business. Every entrepreneur can greatly benefit from an experienced
business ownerâs wisdom, further giving them a leading advantage to raise
capital.
Identify Sources of Capital
There are different types of financing that will enable an entrepreneur to raise
capital for their new business:
Equity financing– This is a type of financing is essentially an
exchange of money for a piece of ownership in a new business. This type of financing
can usually be provided by
venture capitalists and angel investors.
An advantage of using equity financing
as a way to raise capital is that the new business owner can pay back the loaned
amount throughout a fixed duration of time. In addition, the new business owner
can focus on making their product(s) profitable rather than worrying about paying
back the investors immediately.
One possible disadvantage of utilizing equity financing to raise capital is that
the new business owner may lose partial or complete autonomy over their new business.
Often times, angel investors or
venture capitalists may want to have a large share
in their invested company as well as have a say in every business decision made,
including routine ones. A new business owner needs to explore the different options
to raise capital as well as consider each of its benefits and disadvantages before
deciding on what suits their new business the best.
Personal funding
Using personal finances or âbootstrappingâ is one of the first
sources that an entrepreneur may consider using when they decide to raise capital
for their new business. Money can be obtained from personal checking and savings
accounts, credit cards, and retirement accounts. In addition, equity can be collected
from the sale of real estate properties, vehicles, recreational equipment, and even
rare collectables. In fact, some wealthy entrepreneurs can choose to raise capital
for their new business using their own personal funding. On the other hand, many
new business owners may opt to utilize a combination of different sources to raise
capital.Â
Friends and family
Other than self-financing, family members and friends can provide an additional
means to raise capital for a new business. Many of these loans can be made available
rather quickly because these families and associates know the entrepreneur personally
and enjoy the excitement of the
new business venture. Borrowing money from friends
and family can work both for and against the new business owner. Family members
and friends may feel that they should have say in every company decision or may
desire a large stake in the new business since they had lent money to the entrepreneur.
This can lead to resentment and relationship strains among all parties involved.
New business owners need to evaluate the different possibilities that may occur
when they decide to use their friends and family members to raise capital since
it can result in complicated matters.
Angel investors and
venture capitalists
New business owners can also raise capital from angel investors and venture capitalists
through equity financing. By investing in the equity of a business, angel investors
and venture capitalists expect a large return on investment in the form of an acquisition,
IPO, or stock buy back in the future. While this may not seem the most attractive,
it is certainly an avenue to explore, especially if all traditional routes to raise
capital have been exhausted. One disadvantage of equity financing is that even though
the new business owner may be able to
raise capital, they may have to give up some
of their companyâs rights, since angel investors and venture capitalists often
desire a large stake in the company or executive board seat. For many entrepreneurs,
angel investors and venture capitalists may be their only resort to raise capital
for their new businesses.
Debt financing–
New business owners can also raise capital through
debt financing. In its simplest terms, âdebt financingâ means a loan.
Usually, this form of capital for a new business is offered by banks and accredited
government agencies, such as the Small Business Administration.
When new business owners use debt financing as a means to raise capital, he/she
will owe money to the lending agency, which is usually a bank. The strong relationship
between the new business owner and the financial institution continues for the life
of the loan and ends once the new business owner pays back the entire amount.
An advantage of debt financing
as a way to raise capital is that the entrepreneur is able to retain maximum control
over their new business. In addition, interest on debt financing is often tax deductible.
However, one disadvantage of debt financing is that the high debt may look unattractive
to other investors who are also involved in the project. This money owed may discourage
other financiers from lending further funding and can often disqualify a new business
owner from the opportunity to raise capital in the future.
Secured vs. unsecured business loans
Business loans provide new business owners exactly what they are looking for: the
necessary funding to raise capital for their new businesses. These loans are offered
as either secured or unsecured debts, which are specially designed to fit the monetary
requirements of the new business owners.
Secured loans- If the new business owner decides to apply for a
secured loan, they will need to find collateral in order to raise capital for their
new business. Personal, commercial or residential properties, invoices, or even
recreational equipments can be considered deposits to secure the loan. Secured loans
are a popular alternative for entrepreneurs to raise capital for their new businesses.
Unsecured loans- If the new business owner does not want to use
collateral as a form of security to
raise capital for their new business, they have
the option to apply for an unsecured loan. Even though unsecured loans are
not as large in amount as secured loans, this may be more compatible with the new
business ownerâs needs. An unsecured loan is also a popular option to raise
capital for a new business.
In both types of business loans, entrepreneurs are able to raise capital for their
new business based on their credit rating.
Different bank loans and online applications
There are different types of loans that can provide new business owners with the
means to
raise capital. These loans are classified according to the size of the
planned business. The most common types are start-up business loans, small scale
business loans, large business loans, and new business loans.
Many financial lenders can now offer
entrepreneurs the opportunity to raise capital
for their new businesses by applying for a bank loan online. Upon application receipt,
the new business ownerâs information will be thoroughly analyzed for approval
or rejection. All the information completed by the new business owner is strictly
confidential and is transmitted through a secure server. If the entrepreneur needs
an estimation of how much funding is needed to
raise capital for their new business
or inquires about the costs of monthly payments, they can utilize an online loan
calculator which is provided by many financial institutions. Online loan applications
are a fast way for new business owners to raise capital.
Government funding and the SBA
Government loans by the
Small Business Administration are also considered a valuable
source for new business owners who seek to raise capital. Since their inception
in 1953, the SBA has provided a resourceful means for several thousands of new business
owners to raise capital. In fact, the SBA has financed more than 219,000 new business
owners with loans of more than $ 45 billion. The role of the SBA in providing new
business owners the opportunity to raise capital has dramatically increased in the
last decade. In the past 10 years, the SBA has enabled almost 435,000 new businesses
a total amount of more than $94.6 billion. It is no wonder that the SBA is considered
to be one of the leading resources for
new business owners to raise capital.
However, before approaching the SBA as a source to raise capital, entrepreneurs
should be aware that the SBA does not lend money directly to new businesses, but
instead, acts as a guarantor through a network of local lending partners to help
promote the startup, growth, and success of small businesses in the United States.
Since every new business is different and has its own specific monetary needs, entrepreneurs
need to properly estimate how much capital will be needed for their new businesses.
Some new businesses can be started on a small budget, while others may require considerable
investment in inventory or equipment. It is vital for entrepreneurs to estimate
this amount before deciding to
raise capital through the SBA.
The advantages of applying for an SBA loan
The advantage of applying to the SBA for startup capital is that it offers more
flexibility than other loans that are offered by traditional lending institutions.
However, new business owners may not find the SBA an easy source to raise capital.
New business owners who are planning to raise capital through the SBA need to meet
minimum criteria and furnish details of their business profile, loan request amount,
collateral details, business financial statements, and personal financial statements.
Most financial analysts suggest that
new business owners should be able to raise
capital easily through prequalification. Prequalified capital can be made possible
through intermediary organizations which assist prospective borrowers in developing
viable loan application packages and securing loans. Many of these preapproved loans
are made available to many minority groups.
Determine Your Startup Expenses
Once a new business owner identifies the different sources of funding available,
they should now determine the amount of money that is needed to
raise capital. Startup
fees can be rather steep since office expenses (including rent and utilities), research,
development and marketing costs, technological expenses, and employee payroll and
benefits are considered to be necessary business expenditures. Legal and professional
fees should also be considered as well as the basic living salary for the new business
owners for at least one year. During a young companyâs initial years, all
of these expenses can accumulate very rapidly, discouraging new business owners
how to productively raise capital. However, with a solid business plan as well as
ample industry and funding research, new business owners can definitely increase
their chance to raise capital for their new business.
Financial crisis can mean failure
There are many reasons why new businesses do not succeed; however, deficient funding
remains one of the significant reasons behind a companyâs failure. In fact,
all too often, the amount to raise capital for a
new business can be frequently
overlooked. In addition, many entrepreneurs with precarious economic circumstances
are putting their new businesses at risk for failure simply because they have underestimated
the monetary costs of running their new business. Rather than resorting to raise
capital elsewhere, these new business owners tend to limit much of their business-related
expenses which immediately restrict their new businessâ capacity. As a result,
this greatly threatens their companyâs potential growth and stability.
Seeking financial help from outside sources
If any new business owner is ever in a desperate financial situation and need
additional capital to sustain their
new business or to revive their finances, then
they are strongly recommended to raise capital from outside sources. This can come
in the form of a loan, either from a bank, friends and family, or personal investors,
such as an angel investor, who can all effectively raise capital for a new business.
Although many new business owners may underestimate their start-up costs, they should
not be discouraged about their rapidly growing expenses since many different exist
to raise capital. It is extremely important to research all of the different avenues
thoroughly in order to become familiar with the various choices and the processes
involved in order make a well-planned and educated decision. Education and preparation
are the two most important components that will lead
new business owners to successfully
raise capital.
What You Need Before Going to an Investor or Bank
The importance of a business plan
In order to effectively
raise capital, every new business idea with marketable potential
should always be accompanied by a well-constructed, comprehensive business plan.
To create such an extraordinary business plan, new business owners must first organize
their thoughts, and then create a documented first draft. New business owners are
also encouraged to seek the assistance in proof-reading in order to avoid any errors,
which can seriously damage their overall credibility and chance to raise capital.
A well-written business plan is the key for new business owners to successfully
raise capital.
Many
successful entrepreneurs strongly believe that preparing a business plan is
similar to writing a resume. The new business owner has to focus on every detail,
explain their academic background and credentials, and clarify how their experience
could add value to the new business endeavor. In addition to providing several references,
the business plan should be constructed in such a way that it leaves potential investors
speechless, with no further questions asked. By creating a well-prepared, solid
business plan, new business owners will greatly increase their chance to raise capital
for their new business endeavor. In addition, their solid business plan will also
improve their chance to raise capital throughout the development of their new business.
To further increase oneâs chance to raise capital, new business owners are
encouraged to seek the help of professional legal consultants or accountants. These
professionals serve as a valuable resource to
new business owners who want to raise
capital since they can provide new business owners with all of the necessary paperwork
for their business plan. They can even develop the entire business plan for the
new business owner. But before seeking their help, the new business owner must make
sure that these professionals are accredited and that they have experience in the
field of new business startups. The assistance of accredited, experienced professionals
when preparing a business plan will definitely impress investors, increasing the
entrepreneurâs chance to effectively raise capital.
Fixed vs. variable expenses
In addition to a solid business plan, new business owners must be able to differentiate
between two types of expenses that they will have. These essential startup expenses
can be divided into two separate categories: fixed and variable. Once both types
of costs are evaluated and a total amount can be predicted. Bankers and
investors
expect new business owners to know these costs in order to estimate how much capital
will be awarded.
Fixed expenses– New business owners need to consider the amount
they have to pay for rent, utilities, administrative costs, and insurance costs
when they decide to raise capital.
Variable expenses– New business owners also need to take into account
inventory, shipping and packaging costs, sales commissions, and other costs associated
with the direct sale of a product or service for their
new business when they decide
to raise capital.
Things That Matter to an Investor
Financial projections in the business plan
There is no doubt that an effective business plan is needed to successfully raise
capital. Included in a business plan should be a financial worksheet which outlines
all the various categories of costs that can accrue monthly. By using a financial
worksheet, the new business owner can provide lenders and investors three very important
financial measures in order to
raise capital– the income statement, cash flow statement,
and balance sheet. The income statement is probably the most important component
of the three to raise capital. It includes a projected cost report, which provides
projected revenues and the expected income for the new business owner in the next
3 to 5 years. Providing such financial predictions will enable the new business
owner will gain credibility from their financial lenders. It also gives them an
assertive edge to raise capital from additional sources.
Professionalism
Whether an entrepreneur decides to raise capital from traditional bank loans or
from angel investors, new business owners will first have to impress them with their
business plan. New business owners should be aware that despite the possibility
of multiple rejections, they must not be discouraged and always keep a positive,
professional attitude. If an entrepreneur strongly believes in their project, then
they will seek any and all means to
raise capital. If an investor or financial lender
sees potential in an entrepreneurâs new business ideas, then they will strongly
consider the opportunity to enable the new business owner to raise capital and provide
funding for their new business endeavor.
Good credit vs. bad credit
Credit rating has become a very significant component when a new business owner
decides to raise capital. This policy holds true for every financial lender: the
higher the credit score, the lower the interest rates. If a new business owner has
bad credit ratings, such as 600 and below, then they will most likely not be able
to effectively raise capital since there is a high probability that their loan application
will be denied. The
entrepreneurs that seek to raise capital for their new business
in large amounts and are planning to borrow this money from a bank should try to
monitor their credit score and fix their credit history beforehand so that they
can get new business loans at favorable rates. There is no doubt that a high credit
score is a vital component to raise capital for a new business.
A few years ago, there were several financial institutions and banks with a scoring
rank system that automatically determined the new business ownerâs interest
rates. However, nowadays, there are multiple credit rating agencies that diligently
analyze the new business ownerâs credit score before granting capital. For
a new business to effectively raise capital, the new business owner must have a
good credit rating.
Many
entrepreneurs will agree that it is not an easy task to raise capital for their
new business. The credit score agencies can easily determine the credit ratings
of an entrepreneur simply by collecting information on the new business and analyzing
the details, such as the borrowerâs current income level, payment and debt
history, and other important financial facts that may be useful in the process to
raise capital. After credit agencies obtain a detailed report on the borrower, this
information is sold to loan providing organizations, which further determine the
amount of capital to be allocated. Whether an entrepreneur is seeking funding
from a private investor or lending institution, their credit history will be investigated
before they are able to raise capital for their new business.
Go4Funding.com
Go4Funding.com is a leading online organization that provides new business
owners the opportunity to raise capital from investors around the world. By advertising
their capital requirements online, entrepreneurs will be able to quickly increase
their chance to raise capital. Investors (angel investors and venture capitalists)
also find the Go4Funding community enjoyable since they can easily locate thousands
of potential business opportunities from across the globe. Both new business owners
and investors alike are strongly encouraged to visit the Go4Funding website (www.Go4Funding.com)
and become a registered member. Valuable members of the Go4Funding community can
take advantage of the chance to post their credentials and financial needs online,
meet/correspond with other network members, and browse through the various company
profiles. All parties can even share business ideas and solutions as well as partner
together to make solid financial investments.
It is no wonder that Go4Funding.com has become a primary online source for new business
owners and investors.
Conclusion
There are many different funding options available to new business owners
who are seeking to raise capital. However, before they resume their funding quest,
new business owners should identify the different sources of capital and are encouraged
to diligently work on meeting the required criteria. This includes ample industry
research, the creation of an effective business plan, and credit report maintenance
and repairs.
While personal savings and money from family and friends can be readily available,
it may not be enough to
raise capital. Instead, new business owners can raise capital
from financial institutions, government grants, and even from angel investors and
venture capitalists. Â A fast means by which new business owners can effectively
raise capital is through online networks such as Go4Funding.com. As a member, new
business owners can increase their chance to raise capital by posting their capital
necessities online where it will be viewable by accredited investors from around
the world. Many new and existing business owners have used Go4Funding.com as the
main source to raise capital for their businesses while investors depend on Go4Funding.com
for investment opportunities. If you are a new business owner who is seeking to
raise capital or if you are an investor who is interested in different business
prospects, visit Go4Funding.com and become a registered member today. The opportunities
are endless.