Tips To Raise Capital For Your Small Business
You have a great idea and you are ready to start your business. You have done all the research and have learned the intricacies of business management. To put this into practice, you need to have money to invest. Raising capital for your small business can be a tiresome exercise unless you know how to approach prospective investors. As the first step to raise capital for your small business, find out the capital required to get the business up and running. Your business plan should highlight this.
Whether you intend to raise money from a financial institution or your family and friends, you should approach them professionally. Equipped with a detailed business plan, you need to impress them with your capabilities and the prospects of your business. No one would like to lend you money out of friendship.
In the case of family or friends, you can ask them to be a financer or an investor, depending on the amount of money you need. If the money is given as a loan, you will have to pay back the capital and maybe, interest too. An investor needs to be paid a previously decided share of profits. You can even offer them partnership in your small business. It's always wise to approach investors with a detailed proposal.
Your creditworthiness plays an important role in getting funds for your small business from banks. Even if you have a great and convincing business plan, banks will not risk money on you if you have a bad credit history. Your creditworthiness makes you eligible for personal loans. This, together with a comprehensive business plan, will make you a likely candidate for business loans.
Banks consider business loans, especially those for small businesses, risky. Most banks will be reluctant to give unsecured loans. The riskier your business, the harder it is to get loans. So when you approach banks for business loans, be prepared with a plan to pay back the money.
Another option is to seek out an angel investor or a venture capitalist to invest in your small business. These are people who have the money and willingness to invest in a business - to help the business owner to set up and run the business and to make some money while doing so. You can join forums that allow investment seekers to present their case to a host of potential investors.
Angel investors often hold meetings to explore and identify potential investment opportunities. It is not an easy task to convince these shrewd investors. You may have to present your business plan and revenue model to an expert panel. You may have to be prepared to face a barrage of questions.
This is because though angel investors and venture capitalists are ready to take risks, they will take only informed risks. If you can impress them with your presentation and give adequate as well as learned responses to their queries, your chances of raising capital for your small business are more. However, once they decide to invest money, they may not allow you to run the business all by yourself. These investors are likely to demand some ownership and control of your business. Additionally, if you can show them an exit route after a certain period of time, they will be more than happy to invest in your small business.
Another easy but tough option for small business owners to raise working capital is capital reinvestment. Invest the profit you earned from your business back into it, instead of indulging yourselves with the substantial paychecks.