Article Summary:

• Raising capital for business purposes can take many forms.
• Business owners can self-fund and use crowdfunding, loans, and investors.
• A business plan and financial projections can help you decide how much you need.

Whether you’re a scrappy startup or a small company, at some point you’ll probably need to raise funds for business purposes. You might want to launch a company or grow your existing one and need business capital to do that. Raising capital for your business isn’t easy, but it’s possible. Find out six ways you can get capital funding for your business.

1. Self-Funding

If you have a new business or early-stage startup, it can be tough to raise funds. You don’t quite have the business or financial track record to show you’re a strong candidate for financing. That’s why many new entrepreneurs start with bootstrapping or self-funding.

Self-funding is exactly as it sounds; you’re funding the business yourself with your own cash. That can mean tapping funds from savings or retirement (which isn’t necessarily advisable) or using your paycheck from your day job to fund your side enterprise. The downside is it may put you in a tight spot for a while until you get things off the ground. On the other hand, you have complete control over the business and aren’t beholden to potential investors.

2. Friends and Family

If you have strong ties to your family and close personal and professional relationships, you can also raise capital for business purposes using friends and family. Friends and family may invest in your company as a gift, loan, or equity. According to the Securities and Exchange Commission (SEC), friends and family can help raise funds for a business, typically resulting in around $10,000 to $50,000.

3. Crowdfunding

Another capital raising strategy is to use crowdfunding platforms to get funds for your business. You can tap your network and use the power of social media to get extra cash. Some crowdfunding platforms include:

• Kickstarter
• Fundable
• StartEngine

Make sure to map out a plan for a social media campaign to make the most out of crowdfunding. You can also notify email subscribers and supporters to get the word out and provide gifts or rewards for contributions. This type of funding can be tough to get, but if you crack the code it can unleash outside support to get business capital.

4. Small Business Loans

Raising money for a business can be challenging. However, if you have excellent credit and a solid business plan, small business loans may be a viable solution. Small business loans and financing come in many shapes and forms including:

• Small Business Administration (SBA) loans: This government-backed entity supports small businesses through its various SBA loans, including 7a Loans, 504 Loans, and Microloans. Find out more on SBA.gov.
• Term loans: Business owners can look into term loans from banks and online lenders, which offer straightforward terms and a lump sum amount.
• Line of credit: A more flexible option that allows you to draw on available funds is a line of credit. Financial institutions typically approve you for an amount you can use. Based on the amount, you use what you need. When you repay the line of credit, the remaining credit line is available to you, similar to a credit card.
• Business credit cards: To get fast funding, you can also turn to business credit cards. They’re not a traditional small business loan, but in times of need, they can cover any gaps. The bonus here is if you use your employer identification number (EIN), you can start building your business credit. Doing so may help you secure other forms of business capital down the line when you really need it.

Whenever you’re borrowing money, take a close look at interest rates, fees, collateral requirements, and repayment terms. Also, understand how those monthly payments affect your cash flow. Taking out funding and not being able to repay it can backfire. Not only can it hurt your business, but it can also hurt your personal and business credit.

5. Venture Capitalists

If you’re a startup, you may turn to venture capital firms to provide private equity to fuel your growth. This can help with raising capital for your business, but there are strings attached. Typically, when you get venture capital (VC) funding, you give up a percentage of the company to the investors.

In exchange, you get access to funds thanks to high-net-worth individuals, institutional investors, and others who pool money together to invest in your company. VCs don’t invest out of the goodness of their hearts though. They typically want to see major returns through an initial public offering (IPO) or an acquisition.

Global venture startup funds in 2024 stood close to $314 billion, according to Crunchbase. This represents a 3% increase from 2023 totals of $304 billion.

6. Angel Investors

Raising capital for business purposes can also be done through angel investors. According to J.P. Morgan, angel investors are often individuals who invest their personal funds, as opposed to venture capital firms that pool resources together from limited partnerships. Angel investors on average invest $25,000 to $100,000, according to J.P. Morgan. In return, angel investors typically get ownership equity in the business or convertible debt.

Final Thoughts

You have different options to look into when raising capital for a business. To help you have the best shot at any type of funding, have a business plan and financial statements ready. Do your due diligence with different loan providers or investors, so it’s a mutually beneficial arrangement. Nobody gets a free lunch, but you want to be comfortable with what you’re offering in exchange. VC funding may be a great fit for a startup, while other businesses may benefit from traditional term loans.

Raising money for a business can be exciting and stressful at the same time. But once you secure it, make sure you know how you’re going to use it and how you’re going to repay your part of the bargain.

FAQs about Raising Capital for Business

What is Raising Capital for Business?

Raising capital for business refers to the process of securing funding for startup costs and growth potential through debt financing or equity financing. Business owners can look into loans, venture capital firms, angel investors, and other financial resources.

What is a Success Fee for Raising Capital for a Business?

A success fee is often thought of as a finder’s fee or commission to a startup advisor who helps raise capital for a business. It’s typically expressed as a percentage of the amount raised.

What is the Cost of Raising Capital for a Business?

The cost of capital refers to the overall costs a company incurs when raising capital for businesses. For example, making interest payments on debt or bank loans or paying dividends to shareholders.

How Do I Decide How Much Capital to Raise?

Review your cash flow needs and business needs to decide how much capital to raise. Understanding which milestones, you want to hit in a specific period can help guide you.

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