My first business received funding via sponsorships. My second and third were bootstrapped. Currently, I’m running a venture backed business.
What’s the norm? How do small businesses typically fund their companies? How do they get and raise capital?
I turned to the entrepreneurs within the Terkel community for their insights. Here’s what they had to say.
How Should I Raise Capital for a Small Business?
Raising capital for a small business can be challenging, so we've gathered insights from nine experienced professionals, including executive country managers and founders, to help you navigate this process. From forming strategic partnerships to evaluating individual circumstances, discover the top strategies these experts recommend for securing the funds your business needs.
- Form Strategic Partnerships
- Seek Angel Investors
- Apply for Grants
- Explore Multiple Funding Options
- Build Investor Relationships
- Use Crowdfunding Platforms
- Bootstrap Your Business
- Consider SBA Loans
- Evaluate Individual Circumstances
Form Strategic Partnerships
In my experience, one of the most effective ways to raise capital for a small business is to form strategic partnerships. This involves looking for potential businesses that would invest in your venture for a stake or future profits. It's important to research and choose well in selecting partners.
A poor decision can cost the company money, while a well-thought-out one can be very beneficial. For instance, I recently connected with an industry expert who had the resources and industry knowledge necessary to help grow my business exponentially—it was a huge win-win for us both!
Seek Angel Investors
Angel investors are wealthy individuals or businesses that offer capital for starting a business, typically in exchange for ownership equity or convertible debt. Angel investors usually are not solely focused on economic returns, as they will have specific objectives. They may be interested in a particular geographic area in which a business is located, or a specific industry.
They may also provide mentoring or advice alongside capital. If you can build a strong network of wealthy connections, working with angel investors could prove to be a very fruitful way for you to raise capital for your small business.
Apply for Grants
Grants are non-repayable funds provided by the government or private organizations to small businesses with a specific focus or cause. Grants can provide a significant amount of capital, and you don't need to repay them. However, grants are highly competitive, and you may need to meet specific criteria to be eligible for a grant.
Explore Multiple Funding Options
As a small business owner who has built his business through a strong professional network, I can say from experience that this approach has worked well for us. Many small business owners look to friends, family, and professional colleagues for help in raising funds. You can also seek angel investors or venture capitalists who may invest in your idea.
Another great resource for capital is a bank loan. Many banks offer small business loans with favorable repayment terms, allowing you to pay back the loan when your revenues suffice to make regular payments. You may also want to explore options such as crowdfunding, small grants from the government or other organizations, and peer-to-peer lending to help you raise capital.
No matter which approach you take, be sure to have a detailed plan in place. Knowing exactly how you plan to use the capital and what you will do in case of a business setback will help to make your request more attractive.
Build Investor Relationships
Investors want to know that you are dedicated to your company and are prepared to put in the effort, network, go to events where investors are present, ask for introductions, and even put money into their own companies. Although it can take time, developing relationships is often the key to getting long-term funding.
I contacted a few investors on LinkedIn when I was trying to raise money for my company and requested their input on my business strategy. As a result, one investor became intrigued and ultimately invested in my business.
Use Crowdfunding Platforms
One of the best ways to raise capital for a small business is through crowdfunding. Crowdfunding platforms like Kickstarter, Indiegogo, and GoFundMe allow businesses to raise capital from a large group of people. In fact, in 2020, crowdfunding campaigns raised over $17 billion globally.
Crowdfunding can help businesses test the market demand for their products or services while also raising capital. By creating an interesting pitch and offering unique rewards for backers, small businesses can attract a large number of supporters and raise the capital they need to get off the ground.
Bootstrap Your Business
Bootstrapping refers to funding your business using your personal savings, credit cards, or other resources you have on hand. This method is suitable for small businesses with low startup costs and can be a great way to avoid incurring debt or giving up equity in your business. However, it may limit the growth of your business if you don't have enough resources.
Consider SBA Loans
Small Business Administration loans are a fantastic resource for startups and entrepreneurs who need funding to get their businesses off the ground. One of the biggest advantages of SBA loans is their flexibility—they can be used for a wide variety of purposes, from purchasing equipment to hiring employees to marketing your business.
Plus, they often come with lower interest rates and more favorable terms than traditional bank loans. So if you're looking to raise capital for your small business, I definitely recommend exploring your options with the SBA.
Evaluate Individual Circumstances
The best way to raise capital for a small business depends on the type of business and its current financial situation. Some common methods include seeking venture capital, crowdfunding, seeking angel investors, taking out a business loan, and applying for government grants.
It is important to research these options thoroughly, as each approach carries its own advantages and disadvantages. It may be beneficial to consult a financial advisor for guidance throughout the process.
Ultimately, the best approach will depend on the individual circumstances of each small business.
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