You finally get a business idea, you’ve done your research and market survey on how relevant and sustainable your business idea is. Now comes the most important part, where would you get funding to establish your business empire?
Well, when it comes to business funding there are various ways to get money, it depends on your preferences. We’ll be discussing 8 ways you can raise money for your business. Hopefully, at the end of this article, you should be well informed and equipped to make your decision.
8 Ways To Raise Money For Your Business
We’ll start with the most common and conventional ways:
- Bootstrapping: In this method, the entrepreneur is solely responsible for funding. In essence, he builds his business from scratch, self sustains, grows, markets and develops the business without external contribution. The entrepreneur can use his savings to raise money, acquire loans from family and friends or run his business at a low operation cost. This method of raising money of a business involves a high level of professionalism, determination, focus, skill development and overall salesmanship. Brands like: Hewlett-Packard, eBay Inc, GitHub, Coca Cola Co. all started as bootstrapped companies.
- Crowdfunding: As the name suggests, it involves raising funds for a business from a crowd (or a large number of people) it’s typically done via the internet types of crowdfunding include:
- A. Benefit or Reward crowdfunding: This is seen on crowdfunding sites like kickstarter and Indiegogo, where the entrepreneur seeks finance and offers non-monetary benefits in return. So, you set up an account on any of the aforementioned platforms (make sure to read their terms and conditions); create an appealing campaign for your business to attract funders, it’s important to know your target audience that way you can create a campaign that is sure to successfully help you raise funds for your startup business.
- B. Ownership or Equity crowdfunding: Here an entrepreneur pitches his business idea and finance needs to prospective investors, the investor puts money into the business in exchange for a percentage of shares in the company. StartEngine is a crowdfunding medium that allows regular people to invest and have ownership of shares in startup businesses. WeFunder is another equity crowdfunding medium that allows non-accredited investors to use little money to invest in startup businesses of their choice. Ifundwomen is a hybrid of business competition and crowdfunding. An example would be, Ifundwomen says they are holding a competition on beauty product-based businesses and then anyone interested can submit a video entry explaining about their company and why they should be voted for. Then the startup beauty business sends out the link on social media to get people to donate. Whoever raises the most money and gets the most votes wins all of the money raised and additional gifts.
- C. Peer-to-Peer crowdfunding: This method of crowdfunding links entrepreneurs to prospective lenders directly without the use of the banks. There are three key players: The lender (investors who grant loans), borrowers (entrepreneurs in need of loan) and the loan/lending platform. The loan platform sets rates and terms (varies across different platforms), the lender creates an account, stashes it with money that can be lent to entrepreneurs. The borrower creates a finance profile, which is assigned a risk class, then chooses from available offers and the transaction is completed on the platform. Streetshares and Lending Club are peer-to-peer crowdfunding sites, with different target audiences.
- Grants: These are monetary prizes of gifts given by either the government or a company to support a business or motivate outstanding performance, usually it’s not paid back or in some instances, the payback rates are lower than that of banks. As a startup business owner, this is a good source of funding, but it requires you to meet the conditions of the grant, and the goal of the grant giver has to be in sync with your business goals. A common requirement of every grant is a business plan, this is a detailed informative proposal of the business, it’s operational costs, projected profit, current expense and probably the current finance the business has (most grants don’t give the entire fund needed by the entrepreneur). A few of these of grant types are:
- A. General Purpose Grants: These are liberal grants with zenith pliancy, they can be used to run administrative and operational costs of the business, from salaries, purchases of equipment to bill expenses. Although this type of grant is extremely rare, some grant givers allow the entrepreneur to allocate a percentage on money to the administrative cost of the business.
- B. Program and Scheme Grants: This is the most prevalent grant type. they are not as liberal as the general purpose grants as they tend to only incentivize or spur businesses that match the grant giver’s goal or purpose. Their impact is easily measurable, hence why it is the most preferred grant type.
- C. Capital Grants: Also known as bricks and mortar grants, they are majorly focused on building new facilities, refurbishing existing workspace or buying expensive equipment needed by business. they are more suited for businesses that are looking for other forms of support that are not financial.
- Business Competitions: A sure way to raise funds for your business, but is easily overlooked. Most business competitions are niche-specific, (so you just have to find that which suits your business) with prize awards ranging from as low as $1,000 to over $100,000. Some competitions are also subject to location, while others are international and limitless. If you are looking for such competitions a good place to start would be SmallBusinessNotes.com.
- Accelerator and Incubator Programs: Accelerator programs focus on providing mentorship, capital and investor connection to startup companies with already validated Minimum Viable Product (MVPs), so they are not for businesses that only have ideas. These MVPs might already have existing and paying customers and a firm market-fit. Accelerator programs like the name suggest rapidly scales the growth of the business through the opportunities it offers, taking off what would seem to be years of growth processes and accelerating it by a few months, usually 3 months. Good examples of These are Y Combinator and Techstars. Accelerator program are oftentimes used interchangeably with Incubator programs. Incubator programs are aimed at nurturing and grooming startup businesses over a longer period, they work with ideas and concepts, and then gradually turn them into market-fit products. 500 Startups and Amplify.LA are examples of Incubator programmers. These programs although different have similarities, such as training, mentorship and business support. So they are a good source of funds for businesses, you just have to determine which fits your business goals.
- Venture Capital: In this type of funding, investors give either monetary, professional or managerial support to startup businesses that are clearly shown to have a potential growth over time. These investments are made by well-meaning investors or capable investment banks in companies that show extraordinary growth in a short period and give evidence of potential expansion. This is a great find source, except that the investors usually have a say in the business operations as they usually have equity in the company.
- Angel Investors: A direct opposite of Venture Capital, angel investors invest in the entrepreneur himself and not necessarily the viability of the business. An angel investor is a wealthy individual that gives financial support to an entrepreneur with their own money in exchange for ownership equity in the business. It could be one-off support or periodic financial injection into the business to carry it through difficult phases in the company’s journey. It’s a much-preferred source of funding in comparison to other options.
- Pre-selling: This is a great way to raise money for your business, it gives you insight into the profitability of your business before it is launched or built. Pre-selling involves pitching your product vision to potential investors, making it clear to them that it hasn’t been built yet, but it gives your investors some sort of faith and anticipation for your product that would find a solution to their challenges or lapses. In this type of funding, you get to obtain money first then you build your product, you could give an incentive of them being the very first ones to try out the new product when it goes live, create the feeling that if they do not invest now, they would be missing out on a huge investment for the future. It’s important to remember though, in cases like this the expectations of your investors are quite high, so make sure to deliver on everything you have said and if a feature would seem difficult to achieve then do not pitch it, to prevent frustrated and angry investors in the long run.
The list of methods to raise money for a business is inexhaustible, but these are best suited for an entrepreneur who wants to raise funds without having to worry about huge interest rates or bank policies.
Finally, moving from a business idea to setting up a business is a bold step, do not allow finance to prevent you from building your empire. Make research, take advantage of the opportunities and privileges that are available to you and raise the funds you need. Do not forget to build your professionalism, determination, confidence and salesmanship as these make up the ingredients to keep your business despite the hurdles.