If you start searching the web for help in raising capital for a small business, it may surprise you how many articles have been written about this topic. But as someone who routinely researches funding ideas online, I’ve become quite skeptical about most of the “helpful tips” offered by so-called business consultants. Most are written by lenders disguising themselves as entrepreneurs. It is for this reason that I’ve compiled a list of the six best ways I’ve found to raise capital without going to a bank.
One of the biggest challenges with any new business is to manage the cash flow well enough to keep in running, but finding that cash can be a lot more difficult than expected. Even the seasoned entrepreneur who works hard to save money is likely to be in need of capital more than once. That said, before you start the process and go after the cash, be sure you really need the money. Remember, financial constraints often inspire creativity, which often results in a leaner and more innovative business model. According to Joshua Schacter, founder of del.icio.us, “… being overcapitalized is a path to failure.”
The following is a rundown of the most common ways to raise money for your small business.
1. First use your own money – If you have the capital to fund your start-up business, it will guarantee the highest percentage of profit if you decide to sell. Perhaps even more importantly, self-funded businesses ensure that your decisions are not controlled by outside investors. Besides, what could be more motivating than knowing your own money is on the line every day? While this sounds like a great way to get started, it usually works best for people with significant personal wealth.
2. Apply for state-based grants – According to most of the research I’ve done, the U.S. government doesn’t offer any grants for small business owners, but it is possible to find a list of state-based grants online. It can be a lot of work to apply for this type of funding but it could be well worth the trouble. The more interesting and attractive your business is; the more grants you will be able to attract.
3. Put it on your credit card – This may sound absurd to some readers, but when it’s impossible to get a bank loan or a government grant; your business credit card will be a lifesaver. If you don’t have a business credit card, go out and apply for one right away. It will be your first step toward establishing business credit. According to some business advisors, it is always better to make an informed choice about the use of credit cards for a business. If the business fails you will not want to be stuck with a huge amount of credit card debt at high interest rates.
4. Go after consulting work on the side – Raising capital isn’t all about getting money from others; it can often be about earning more money to fund the business yourself. Money earned from consulting or side projects can be invested into the business right away, which means you won’t need to pay any interest on a capital investment.
5. Look for angel investors – As the name implies, an “angel investor” is someone who is wealthy and kind enough to invest their own money into a startup. Often friends or family of the business owner, these investors usually get a percentage of the company’s assets or repayment with interest. Angel investors offer entrepreneurs the flexibility of expanding the business without too much outside control and it is an increasingly popular way to capitalize a company.
6. Get some venture capital (VC) – For most business owners, venture capital is the funding method that is shrouded in the most mystery. Most entrepreneurs don’t fully understand how venture capital works or how to get it, that is until they go through a round of funding from VCs. Some owners resist the idea of working with venture capitalists until they see how quickly they can move to their next stage of growth.
Not all of these tips will work for everyone, and getting a loan may still be something you’re considering. If this is the case, you may be surprised at how much easier it is now than it was a few years ago. Bank loans may require a certain amount of secure collateral and they may not always be offered with the most favorable terms. Take the time to read the fine print on the agreement before signing for a business loan application.
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