You may need to raise funds at some point to grow your business.
The first task is figuring out how much you need, and what it’s for. For example, you could be aiming to increase capacity by investing in new equipment or expanding your facilities. Or you might be planning to buy a competitor. Whatever the reason, the first part of your business case is to clearly define the reasons you need extra capital. Once you’ve done that, you’ll have a clearer idea of just how much you’ll need, and whether it’s justified.
10 Ideas To Identify Sources Of Business Funding
1. Money Inside Your Business
Once you’ve determined how much you need, a solid first step is to look inside your business to see if you already have access to some of that money. For example, you could explore selling equipment you don’t use very often (and leasing it when you do need it), cutting down on travel expenses by using Skype instead of physically travelling, reducing the amount of personal withdrawals you’re making, or re-negotiating deals with suppliers for better credit terms.
2. Your Personal Funds
Always evaluate whether you can provide your own funds before taking out another loan. Also known as ‘bootstrapping’, self-financing is the most common form of raising capital for business start-ups.
Banks, government lenders, and other investors will want to know exactly how much of your own cash you’re planning to invest in your business, so your personal funds are a good early place to find cash.
3. Friends and Family
Your friends and family can often be a first option for seeking finance as they’re easy to approach and want to see your business venture do well.
You’ll probably be able to borrow money for little or no interest, giving you a huge advantage as you look to establish or expand your business. Make sure to set out the terms of the exchange, such as when and how the money will be repaid, what it will be used for, and whether interest will be charged.
4. Business Partnership
Depending on your goals, you may be able to partner with an existing business to provide the support and resources you need to grow. For example, if you’re looking to export you may be able to partner with an existing exporter to cut down on your costs by giving them a margin of your profits. In this way you can make it less expensive to grow without attaching yourself to another fixed cost.
5. Angel Investors
Angel investors are successful individuals (often other business owners) who’re interested in investing their own personal funds into promising small businesses. They’ll want to invest funds in your business if it has high growth prospects.
Wondering how to find angel investors? It can be helpful to search for angel investors that have expertise in your industry, as they’ll be interested in contributing their own skills to your business. They usually prefer to invest in businesses they’re familiar with, wanting either a return on their investment, some equity, or both.
The great thing about angel investors is that they’re usually keen to invest at an early stage, which can help with your start up. They bring their own experience to the table, which is knowledge you should consider taking advantage of.
You can learn more by visiting the US Angel Capital Association.
6. Venture Capitalists
Venture capitalists typically invest in young companies they anticipate will be sold to the public, or to a larger company, at a high rate of return. If your business is in a fast-growing industry with a large market potential, you may just catch the eye of an investor.
Like angel investors, venture capitalists (VCs) provide funding in exchange for a share in your company. Unlike angel investors, VCs invest on a much larger scale – typically millions of dollars. They rarely invest in an untested idea, preferring businesses that can demonstrate rapid, consistent growth and guarantee a worthwhile return. As shareholders, venture capitalists earn a portion of annual revenue – but the real profit isn’t made until the company is sold.
For more information on the venture capital environment in the US, visit the US National Venture Capital Association (NVCA) website.
7. Crowdfunding
Crowdfunding is one of the newer avenues for businesses to take when raising capital. The concept behind crowdfunding is to let prospective entrepreneurs seek capital from many investors in small amounts online.
Make sure you research your options thoroughly before choosing a crowdfunding platform to seek investment through. Fundable and Crowdfunder are just two of many popular crowdfunding platforms focused on US start-ups.
8. Government Grants and Subsidies
It’s always worth checking out what the government can offer you. Mostly, this type of business funding comes in the form of grants, but you may also be eligible for subsidies or loans. Governments at all levels want your business to succeed, so they create programs to supply tax breaks, wage subsidies or loan guarantees.
9. Business Loans
You may be eligible for a business loan from Diamond Credit Union to fund your growth or expansion. Diamond has different options to match your needs. Reach out to the Business Services Team for more information and help.
10. Peer-to-Peer Lending
In peer-to-peer (P2P) lending, you borrow money directly from other individuals or investors rather than from a traditional financial institution. P2P lending is facilitated through online platforms designed to connect borrowers and lenders. You’ll still need to repay the loan and undergo a credit assessment to determine your creditworthiness, but you’ll have access to funding you may not otherwise have.
Preparing Your Business to Raise Capital
Regardless of where you decide to source the funds your business needs, it’s best to be as prepared as possible. These 4 tips will help you present a strong business case to whomever you talk to:
- Speak to advisors who can guide you as you look to acquire business funding. Your financial institution, lawyer and accountant are all people you should consult.
- Build your business case by reviewing your business plan and presenting it well. Define your goals, how you’re going to achieve them, why you need capital and how much you require.
- Show you’re unique by highlighting what will make you stand out. Showcase your competitive advantage and point of difference.
- Look for leverage and make sure you’ve done your due diligence on all potential investors so you can decide on the best option for you.
Be aware that there are some risks in raising capital. You may be taking on additional debt or you may have to hand over some control of your company if you seek investors. Make sure you’re comfortable with the consequences of whichever options you choose.
Next Steps To Grow Your Business
The first step in borrowing money to grow is to determine how much money you need. Once you’ve done that, explore your current business and your personal finances to see how much of the money you can come up with yourself, without putting either your business or yourself in financial jeopardy. After that, consider what type of business funding you’re most comfortable with and explore the options available to you.
If you need assistance, Diamond Credit Union would love to help. Contact our team of finance experts.
