How to Raise Fund for your Business: 6 Sources for Funding
Starting a business based on your product or service is the dream of every entrepreneur. Success can be achieved with a good idea and some effort. But the fund is the most needed thing for the business to run smoothly. There are various ways to raise funds for your business, and you need to know about them. Business pitching is vital to your success. The more effectively you can present your business idea, the more likely you are to attract funding.
Unless you’re independently well-heeled, you are going to need assistance in managing your finances. This post shares some of the best ways to get funded easily.
Click Here to Read: How to Start a Business from Scratch
How Much Funding Do You Need?
If you want to improve the fortunes of your business, figure out what your company needs and narrow down the choices to a few different financing options. Every business is different, and every financial solution needs to be customized.
Various Sources of Raising Funds for Business
- Self-funding(Boost trapping)
- Venture capital funding
- Crowdfunding
- Angel investors
- Small business administration (SBA)
- Small business loans
1.Self-funding (Boost Trapping)
Bootstrapping, which is also known as self-funding, is the process by which you use your own money to launch a business. Bootstrapping can mean using savings accounts or asking friends and family for capital funding.
With self-funding, you have to take on all the risk, but you also get to keep the entire profit. Try to avoid spending money that you know you won’t have later. You should know the facts that your actions will lead to a chain of consequences, like ripples in a pond. You will be charged penalties and late fees if you want to cash in your retirement account early, so don’t do this without first checking with your employer.
2.Venture Capital Funding
Venture capital investors will give you money in the form of an ownership share of the company. Venture capital investors may also choose to buy a large share of the company and have more say in how your business runs.
Venture capital is different than traditional funding in several important ways. As in venture capitals, investors look for the following:
- Focuses rapidly-growing companies
- Own an asset, rather than borrow from a lender
- Investors often take the risk that to receive higher returns
- Look for a longer payback period than traditional funding
Most venture capitalists won’t just want a seat on the board of directors, they’ll also want to have some power in choosing who will be on the rest of the board and what kind of business decisions will be made.
3.Crowdfunding
Crowdfunding finds support from a big crowd, and the money raised is used for business purposes. Crowdfunders are people who give a lot of money to a business in exchange for tokens that may have value in the future. Crowdfunders may not be true investors.
Crowdfunding is attractive because it’s a low-risk way to raise money for your business. When your campaign ends and you receive the funds, you’re under no obligation to pay back the backers. Before setting up a campaign, make sure to resolve any doubts by asking crowdfunding platforms and potential backers for more information.
Crowdfunders expect your company to give them something in return. That something is often the product or service you plan to sell. Sometimes, it’s an insider experience, like getting named in the credits. This makes it a popular option for people who want to produce a creative work or an item that won’t fit the necessary criteria for traditional financing (like a documentary or physical product), while still returning some profit to the people who invest in it.
4.Angel Investors
A group of high-net-worth individuals, called angel investors, invest in startup companies. Some people refer to this type of investment as ‘seed’ funding and it can start at around £1 million. Just like venture capitalists, angel investors will take an equity stake in your business, so they must believe that your business is a good investment and that you’re competent to run it.
Raising angel funding to grow a business can be a great way to secure additional capital, get expert advice, and build a personal relationship that may help your business later on.
5.Small Business Administration (SBA)
Government grant programs could prove helpful if you’re looking for ways to raise capital. There are several grant programs from the SBA including ones for businesses that are not yet profitable. Small Business Assistance (SBA) offers flexible loan programs designed to allow you to finance your business. But Interest rates are usually lower than many banks. There are some SBA programs given:
- Small Business Investment Company (SBIC)
- Small Business Innovation Research (SBIR) program
- Small Business Technology Transfer (STTR) Program
6.Small Business Loans
There are numerous financing options available to those who need money for business growth or expansion. Loans are a primary option for businesses because they usually have more leeway in terms of payment periods, fewer regulations, and lower interest rates.
Fund Raising for Growing Business
If you’re interested in raising capital for your business, here are some ways to do so:
- Purchase Order finance
- Contests
- Pre-sales Products
- Incubator Programs
- Strategic Partner
1.Purchase Order finance
Purchase order financing allows businesses to purchase necessary materials and equipment immediately instead of paying for it at the end of the project when their clients have paid them. A purchase order financing company provides you with the money to pay your supplier upfront. You should only make payments when the product you ordered is complete.
Once you’ve finished making your product, you can ship it to your customer or supplier and then collect the payment that’s owed to you. When you fill your order with your purchase order financing company, you’re paying it back. Credit isn’t the cheapest way to borrow money, but it can be an option if you aren’t able to qualify for cheaper forms of financing.
2.Contests
Business contests encourage innovation, and because they support good ideas rather than specific projects, there’s no reason to doubt that the money will be well-spent. Business grants are also a possibility, but they usually come with more terms and conditions. Contests are a great way to help creative businesses and social enterprises gain more exposure through media.
3.Pre-sales Products
If you offer people the option to pre-order products before they launch or hit the shelves, it will encourage them to associate your organization with a brand that offers them something of value and inspires confidence. It’s not only a way to fund their product, but it also allows them to test the demand for their product.
4.Incubator Programs
Business incubators help small, growing businesses increase their chances of success by providing them with resources such as physical space, management training, and access to mentorship. Businesses that have gone through an incubator program enjoy increased survivability and growth.
5.Strategic Partner
A strategic partner can be someone you work with or sell your services to. While there may not be a direct relationship between the two, a supply chain credit line can help you cover expenses while your business finances are unstable.
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Which Option is Right for You?
When considering your options, think about whether or not each of them will be able to continue in the future. For example, consider how much you’ll earn, what your expenses are, and whether you’re comfortable with the product’s quality.
If you choose to seek investment (is it an actual investment or debt), you’ll need to think about where the money will come from, how much control you’ll keep over your business, and how much the loan will cost. You need to decide whether you prefer a cash injection in the short term, or being able to share your business’s growth with shareholders. Your CPA can help you with financial planning and other related matters.
