Before you go down the path of seeking capital from outside your business, identify any other ways of raising capital. For example, do you have any savings (either in the business or you personally) that you could use? If you have unused assets in the business (machinery that’s not used very often, buildings or excess stock you could quit), then weigh up the advantages of selling these first.
Once you have completed this exercise, determine how much you now need.
The most common form of raising capital is with ‘Debt capital’. This is money you’ve borrowed, usually from your bank (or friends and colleagues). It could be short-term funding like an overdraft for extra stock, or longer-term loans for buying new equipment or a building.
Less common is ‘Equity capital’ where you raise cash in exchange for selling part of your business. In effect you give up some of the equity in your business for capital to help grow. More often than not, you need substantial amounts of capital to make it worth-while to the investor.
Most of us are familiar with borrowing money. The most popular sources are:
Before you borrow any funds, double check that do you really need cash, or would you be better off looking at new markets working alongside a partner business?
If you require more capital than you can raise yourself or borrow, then you may wish to sell part of your business in return. The main providers are:
Angels are people (often other business owners) who think your business is promising and are willing to invest in it. They usually 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 take advantage of.
These are investment companies or fund managers who provide cash in return for part-ownership of your business. However, they’re typically looking to invest larger sums of money, which could be above and beyond what you need, and their requirements are much tougher than angel investors.
They may not want to play such an active role in the management of your business, but possibly a role on your board (so they tend to look at larger businesses).
It’s well worth checking out whether or not your business qualifies for government funding. Mostly, this type of funding comes in the form of grants.
At times large companies (it could be a customer or supplier of yours) invest in smaller businesses that they have a stake in seeing grow and expand.
Growing in popularity are online capital raising forums. They profile businesses seeking capital and then rely on the online investor network to raise the capital required.
Regardless of where you get the capital from, the more prepared you are the better.
These tips will help you present a strong business case to whoever you are talking to:
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