First, they may be starting up and thus need capital to get their operations off the ground. Second, they may already be a growing company and require additional capital to expand their businesses.
For whatever reason a company may need to raise capital, it is important for the proprietor(s) to know how to raise capital. According to the ANZ website, there are two major types of capital; debt and equity capital. Other forms of capital exist too but they may not necessarily fall under these two categories.
Let us now look at the top five ways to raise capital.
1. Raising it Yourself
This method of raising capital falls under equity capital. When the amount needed for starting up or expanding a business is not too huge, most investors save up their earnings and use it as capital.
The advantage of this method of raising capital is that you will not be indebted to any person or financial institution and that you will maintain complete control of your business.
2. Borrowing from Family and Friends
As the title already clued, this falls under debt capital. Family and friends are usually the go-to options for most entrepreneurs.
Borrowing from family and friends has several advantages over borrowing from financial institutions. Although the capital will still be a debt, you will enjoy a flexible payment schedule and suffer little or no interest.
3. Borrowing from Financial Institutions.
Borrowing from financial institutions falls under debt capital. Such financial institutions include banks and other traditional lenders. Borrowing from banks is very advantageous because such institutions have very many resources and may fund your business if they accept your application.
However, some banks charge exorbitant interests on loans especially if they are short-term. According to Forbes, borrowing from financial institutions is also a sound strategic move as when your application is approved by a bank, it shows other potential investors that you are a professional and that you take your business seriously.
4. Approaching Angel Investors and Investment Companies
Angel investors and investment companies, entities that are usually business owners, are parties that invest in businesses that they think are promising. Such parties usually invest in businesses that they are familiar with.
other valuable tips:
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However, most of them have very demanding application procedures that most investors fail to pass. In order to get funding from such bodies, market your business well and make sure that your business structure is sound.
5. Crowdfunding
This is a very popular online mode of funding. When you have run out of options, crowdfunding may be the way to go. What happens is that there are online companies who profile your business and display it to the world. After that, people who are interested in seeing your business grow will chip in to growing your capital. The main advantage of this method is that it exposes entrepreneur to millions of potential investors.
And there you have it: the top ways of raising capital. In order for any of the above methods to work, your business must be well organized so as to lure in potential investors. You should not give up on a business idea just because you lacked the capital – become an entrepreneur. Entrepreneurs solve problems and you can start with your own capital problem.
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