There’s a point in turning your idea into reality where things get serious; gone are the days of dreaming and scheming – it’s now time to launch,and to do this, you need some capital behind you.
Unfortunately, one of the greatest challenges any entrepreneur wanting to start up their own small business faces, is raising capital to take the acorn of their idea into the fledgling stage of business development. Essentially, the process of raising capital is what enables them to take their business to the next level.
That said, unless you’re an established company such as American Pavilion that rents out clearspan fabric structures you’re unlikely to get on Shark Tank anytime soon; meaning you need to find a more low key way to attain the capital you require.
However, something to be mindful of is that entrepreneurs face immense emotional pressure and work very hard, yet still face an extremely high risk of failing within the first few years. In this case, having friends and family to support you is particularly crucial but when they have money tied up in your business – the dynamic can change to the point they become a source of pressure and stress rather than comfort and support.
This article looks at three of the most common suggestions for raising capital as a start-up business, at an early stage – which are to get a business loan, seek help from friends and family, and crowdfunding.
GET A BUSINESS LOAN
The most traditional route for setting up a small business is to get a small business loan. This is one of the most easy, reliable, and simple ways of financing your business. You keep complete control of your company, as you aren’t having to offer equity to external investors, who each get a say in how your company is run – and convincing one person, is a whole lot easier than going around investor meetings.
FRIENDS AND FAMILY
If you have a wealthy relative, or several friends and family who are open to backing your business for a small incentive (such as interest on the loan) then this can be a great option, as it will cost less and be easier to arrange than commercial financing; however, borrowing money from friends and family can be a very stressful experience that totally changes (and sometimes annihilates) friendships. It might be worth considering the potential strain put on your friendships should the business not turn out to be a success.
A recent trend in raising startup capital is that of crowdfunding; where you pitch your idea on an online platform such as www.crowdfunding.com and strangers can offer bits of cash to back your idea – but these ‘bits of cash’ can accumulate to several million dollars.
In summary, there are three main options; raise money from a commercial source such as a bank, raise money from friends and family, or raise money via crowdfunding. Whatever route you decide to go down just make sure that your cash flow projections are realistic and that you are asking for as much as you actually need; as one of the main reasons for business failure is a lack of cash flow.