10 Proven Ways to Get Capital to Start Your Business
Starting your own business requires an incredible amount of risk, but it also requires capital—in other words, cash. The good news is that you have several options for getting the money you need to launch your new business venture, whether you’re considering investing in yourself by launching a Kickstarter campaign or taking out a loan from the bank. Here are 10 proven ways to get capital to start your business and make your entrepreneurial dreams come true.
1) Setting up a company
If you want to start a company but don’t know where to begin, there are a lot of options out there. One of them is starting your own limited liability company (LLC). For many business owners, setting up an LLC makes a lot of sense—especially if you’re just getting started or have plans for expansion in place. And while it can seem overwhelming, setting up an LLC has gotten much easier over time with technology and simple forms. It’s also important to remember that your choice doesn’t limit what type of business you can run. You can still operate as a sole proprietor even if you set up an LLC, so long as all your assets remain under that name and not yours personally.
2) Getting funds from friends and family
Friends and family are often a great source of startup capital. It’s easier to ask for money from people you already know than it is to go out and ask complete strangers. Friends and family have a vested interest in your success, too, because they have skin in the game as well. The downside of borrowing money from friends or family is that you may feel obligated to pay them back quickly, which could end up shortchanging your business.
3) Banks and other institutional funding sources
Whether it’s a loan or investment, banks and other traditional financial institutions are always going to be one of your best bets for getting capital. That doesn’t mean they’re always right for you, though; research how long it takes them to fund businesses and whether they typically lend or invest (most work with both), as well as their approval requirements and interest rates. Then consider alternative funding sources such as crowdfunding websites, which have been growing in popularity over recent years. These sites allow entrepreneurs to reach out directly to potential investors online, giving business owners access to a larger pool of money than they might otherwise get through more traditional means.
4) Crowdfunding websites
The most popular crowdfunding website is Kickstarter, which hosts creative projects like music, film, and video games. However, there are also many sites for getting investors for a wide variety of endeavors—from building factories in Africa to finding real estate deals in New York City. Though these websites aren’t a quick way to raise money on their own, they are an effective way to build relationships with investors who can help you make your business happen.
5) Angel investors
Angel investors are individuals who make private equity investments in companies, either directly or through a fund. These angels have different profiles: some are wealthy individual businesspeople, and others are institutions that invest as part of a broader portfolio. However, all share one thing in common: they want to see a solid return on their investment. They’re looking for businesses with strong management teams and market potential—businesses they can help grow into successful operations with significant financial upside.
Angels will typically provide capital infusions in exchange for equity in your business, so it’s critical that you build a strong pitch. This will include answering key questions about your business, such as how much money you need and what you plan to do with it. Be prepared for more than one discussion: angels have many companies vying for their funding attention, so it may take multiple meetings and presentations before they make a decision.
6) Government grants
There are government grants for all kinds of businesses, and you can qualify for them even if you don’t have perfect credit. The Small Business Administration and your state provide grants specifically designed for small businesses that need financial help. And there are grants out there meant specifically for women-owned companies.
You don’t have to give up your dreams just because you don’t have enough capital on hand. When you start looking for government grants, it will feel like Christmas as you find so many possibilities for getting money for your business. Be sure that if you apply for and receive a grant, you comply with all reporting requirements and give them regular updates on how your business is doing.
7) Equity crowdfunding
This is one of the latest methods of getting your company funded, and it’s all about getting money from people who are willing to invest a small amount in return for an ownership share in your company. If you manage to get enough support from private investors, then you’ll have enough backing to fund your company’s projects with significantly less investment from venture capitalists or banks.
8) Offering shares on an exchange
Some companies on this exchange will sell their stocks directly to investors. If you’re starting a new business and need money, you should list it on an exchange, because of its liquidity. a liquid measure is the degree to which a company’s shares can be traded without the price of shares dipping, and the issue with getting listed on an exchange is that you often have to wait a long time and pay a hefty price. However, if you’re rich enough to absorb losses and make returns that surpass the standard by a long-shot, then maybe it’s worth it. According to a Harvard University study, stocks in highly liquid IPOs outperform their less liquid peers over a three-year period.
9) Interest free loans, leases or lines of credit
An interest-free loan, lease or line of credit can be a great way to start your business. The loan has no fixed repayment date and most come with flexible terms and low interest rates. But you will have pay back what you borrow, plus interest at a later date. This is where it’s helpful to get advice from a financial advisor on how much capital you will need for your business venture.
10) Finding and creating investment opportunities
There are many ways to find a potential investor, but some of these opportunities can easily be created by you. One of these is through business contests or competitions. Business plan competitions are a great way for new businesses to be discovered and make a positive impression on investors looking for promising companies. You can also try submitting your idea directly to angel investors, venture capitalists, and other key players in your industry who may be able to give you financial support.