How to Raise Capital for your Business
Lack of capital is perhaps the most important reason why entrepreneurs around the world give up on starting a business.
Many passionate people, including Africans don’t have enough courage to realize their business ideas, projects and make the dreams come true just because they don’t have a capital.
But the lack of capital is not a real killer of business dreams. Many startup founders might ask why or disagree.
During the last decade, a lot of capital has been flowing into African countries. It boosted a huge increase in African economic development. In 2016, Africa received up to $300 million in tech startup funding and the following year this number rose to almost $400 million.
These numbers do not even include other startups.
The good news is that there are no reasons to stop this capital flow to rise higher and higher. And as the years go by, African entrepreneurs become more and more confident.
They integrate into the world of business with ease, but it has not always been like that.
Many businessmen don’t understand, but bank loan is just one out of many options for entrepreneurs to raise a capital. This is actually not the best option.
The problem is that too many unqualified businessmen ask banks for loans.
Here are some easy ways to raise capital for your business:
1. Bootstrap your business
Provided that your business isn’t operating in an industry that requires lots of startup capital, like manufacturing or transportation, you can potentially fund your own venture and it may be more feasible than you think.
For instance, even if you don’t have enough in savings to run the operation, you could get a 0% / low interest APR business credit card, offering you the chance to borrow cash for a period of time without incurring interest.
Investing some of your own money will usually make investors and lenders more willing to partner with you down the line.
2. Launch a crowdfunding campaign
There are many crowdfunding success stories out there. And with the right product and pitch, you can be one of them.
Crowdfunding gives you the opportunity to connect with like-minded people who you wouldn’t normally be able to engage. You can gauge interest in your product and understand what’s resonating with people and what’s not.
This shows you how to improve your product and your pitch. Most importantly, crowdfunding can help you raise money to fund your business.
3. Apply for a loan
Even as technology creates new ways of raising capital, traditional financing products remain the primary way small businesses fund their operations.
According to the Small Business Administration (SBA), almost 75% of financing for new firms comes from business loans, credit cards, and lines of credit.
Generally speaking, the small business loans with the most favorable rates and terms are going to be SBA loans and term loans from banks and other financial institutions.
To get approved, you typically need to meet requirements like the following:
Before applying for a small business loan, make sure to prepare any loan documents you’ll need to show ahead of time. You’ll be asked to show a profit and loss statement, balance sheets, tax returns and bank statements. In some cases your personal information may be checked as well.
4. Raise capital by asking friends and family
Raising capital through friends and family is a viable option for many. According to the Global Entrepreneurship Monitor, 5% of US adults have invested in a company started by someone they know.
Caron Beesley, a content marketing specialist and SBA contributor, advises that you ideally select a friend or family member with solid business skills.
She also suggests that you “narrow your list down to friends or family who have faith that you will succeed, who understand your plans, and who are clear about the risks.”
Once you’ve done that, Beesley stresses that you must demonstrate passion and due diligence by having a sound business plan and direction. Also, be realistic about how much money is needed.
5. Find an angel investor
By definition, angel investors are accredited individuals with a net worth exceeding $1 million or annual income of more than $200,000.
They typically operate alone, but may team up with other angel investors and form a fund.
Knowing this, angel investors can be a good source of capital for your business. First, you must have a solid business plan put together and a great pitch ready.
You have to capture their attention with enthusiasm and promising data points about your company’s current situation and future potential.
6. Get investment from venture capitalists
Venture capitalists (VCs) typically want to invest in slightly more mature companies than angel investors and sometimes want to have more of a say in managing the day-to-day operations.
Since VCs have a responsibility to achieve certain returns for the firm or fund, they want scalable and cash-flow positive companies with proven and scalable products and businesses.
If your company satisfies these requirements, you could apply for an investment with a VC firm. It’s not the easiest thing to accomplish, but plenty of small businesses have done it successfully.