Tag: raising capital

Capitalizing Your Business for Success

Every business needs capital to grow, no matter whether it’s a mom-and-pop storefront or a mature multinational corporation. Startups face particular challenges, however, given that they are generally untested and unproven.

For a new business in today’s economic climate, securing enough funding from a bank may prove a difficult proposition depending on how much it needs to borrow and how much collateral it can offer. For that reason, some entrepreneurs turn to courting investors or financing the business themselves. Both of these methods have own pros and cons.

venture capital
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Investor Cash Can Be Blessing and Curse

Money from outside investors can be very appealing for the simple reason that a business owner is not risking his or her own nest egg on the new venture. In addition, investor funding can help fuel massive growth in a relatively short term. However, that has the potential to be both a blessing and a curse. Uncontrolled growth can bring challenges – business owners may have little time to consider and refine their product and/or strategy as they become consumed by the demands of daily operations.

Large sums of outside capital can also bring publicity and media attention. On the plus side, that exposure can create word-of-mouth buzz, bringing customers without the expense of traditional advertising. On the flip side, however, a heavy amount of attention can overwhelm a startup, ratcheting up demand beyond supply capacity and threatening to undo any initial positive press with a wave of customer dissatisfaction.

In short, a new business must be ready for all eventualities when it hits the market.

Bootstrapping for Controlled Growth

Unless we’re dealing with the likes of Bill Gates or Warren Buffett, the option of self-financing a business – also known as bootstrapping – probably won’t yield the quick growth and flash of an investor-funded startup. What it can offer, instead, is an enhanced level of control and stability, which may prime a business for long-term success. When owners bootstrap, their business can only grow as fast as their revenues and their ability to pay employees. That makes it less likely that customer demand will outpace the quantity or quality of the goods, or the capabilities of the workforce.

Of course, there are tradeoffs. Bootstrapping means the owner assumes the financial risk if the business fails. It may also be tricky to cover expenses, especially in the early days when sales volume is low. This is where a business owner may need to get creative, at least in the short term, in generating revenue and trimming expenses, which could include reducing or foregoing a salary. Other possible options include working from home to avoid office rent and using social media and other technology for low-cost marketing.

Funding Help Available for Small Businesses

There’s no denying that having a pot of cash at the ready would probably make life easier for startup businesses. Still, there are ways to grow a business with little or no capital. Online affiliate programs, for example, can provide a revenue stream – a business earns a commission each time a visitor to its website clicks a link to another firm’s products. Joint ventures, meanwhile, allow business owners to pool resources and share expertise.

The Small Business Investment Company (SBIC) program, which is part of the U.S. Small Business Administration, seeks to help business owners secure private funding and long-term loans, with the overall goal of boosting private-sector job creation.

In FY 2012, the program provided financing totaling $3.1 billion to more than 1,000 small businesses, a 17% increase over the previous fiscal year. Almost one-third of the recipients were owned by minorities, veterans or women, and/or located in low- to moderate-income communities.

According to the Small Business Administration, about 65,000 jobs were sustained or created as a result of SBIC-related financing in 2012.

Whether entrepreneurs and small business owners tap into government programs such as the SBIC, finance themselves or seek backing from outside investors, they have options for securing startup capital.

About the Author: Dean Vella writes about business and leadership on behalf of University Alliance, a facilitator of online certificate programs in business administration, and leadership and management.

How To Raise Capital For Your Business When Your Bank will not Help

Raising capital for a business seems like it should be pretty straightforward. It’s not. Banks often want you to post significant collateral for your business. If you’re just starting out, you probably don’t have anything that the bank can hold as security for the loan. While that might seem like a major roadblock, you can overcome this by raising capital through other sources.

Angel Investors

Angel investors are people who invest in businesses in exchange for a share of the profits that you generate. These investors are always accredited investors and act as either direct advisers for your company or as major shareholders. You have to be incorporated in order to attract angel investors, but many companies exist to make this process easier for you.

For example, the Go BIG Network Investors’ Circle are networks that connect you to angel investors. Inc.com also publishes an updated database of angel investor networks so that you can stay focused on developing your business.

Reverse Merger

Going public is one way to raise funds for your company. By going public, you can issue shares of your company to the general public, and investors will buy those shares from you. The money you get from those investors can be used for any business-related purpose. Of course, investors become part shareholder in the company, so you’ll need to work for your investors’ best interest by growing the company.

Shareholders can also vote on who remains on the board of directors and can affect the direction of the company indirectly through this type of voting. While going public is often expensive, there is an easier way to do it than issuing an initial public offering (IPO). It’s called a reverse merger. A reverse merger is when you purchase an existing public company that has failed, but is still public. Once you buy the company, you structure it so that it buys out your existing, non-public, company. The result is that you now own a public company and can sell shares to the public and raise the funds you need.

Peer-To-Peer Lending

Peer-to-peer lending is a relatively new form of lending when compared to traditional banking. It refers to the process of borrowing money from private investors, using a traditional bank as the intermediary. Companies like prosper.com exist entirely for this purpose. Investors sign up to the website and loan money to promising borrowers.

The loans are typically repayable within 3 years, but you may negotiate the interest rate on the loan. After you place a loan listing, investors bid on your loan. The bidding process is part of the funding process. With each bid, your loan becomes partially funded. An investor may contribute $50, $100, or $1,000 or more towards your total loan amount. Instead of one bank funding your entire loan amount, many investors make a partial contribution to your loan. When your loan is fully funded, the financial intermediary sends the money to your bank account via a direct deposit transaction.

Factoring

Factoring is similar to a cash advance. A factoring company advances you money based on your current accounts receivables. In other words, you sell your invoices to a factoring company, and that company advances you an amount of money equal to 75 to 85 percent of the total value of the invoices. The factoring company may also charge you a fee on top of the discounted rate it advances you. This is a good option if you need liquidity now, or your company is starved for cash and it normally takes you a long time to collect on your invoices.

About the Author: Guest post written by Elizabeth Goldman and brought to you by Wonga – the short term loan experts.

5 Ways To Raise Capital For a Business

One of the major challenges before any entrepreneur is to raise capital for his business. This becomes more important for a new entrepreneur as he starts the business without any contacts or experience. No doubt, a business plan, office, workers, contacts and and many more things are involved with a business but raising capital is the primary challenge. There are a number of ways to raise capital for a business and this post covers detailed information regarding those methods.

Loans From Banks

One of the easiest methods to get the required capital for a business is to take loan from a bank. In order to get loans from banks, you will have to submit security worth the loan amount. Even after the easy availability of loans, most of the entrepreneurs avoid bank loans as a medium to raise capital for business. This is bank loans are associated with high interest rates and various other complications.

Venture Capitalists

Another method to obtain necessary funds for starting a business is from venture capitalists. Since venture capitalists are very strict with approval and sanctioning loans, you must have a solid business plan based on an innovative idea. If the venture capitalists are impressed with your plan, you can easily get the required capital. In return, you have to provide them some equity in the business. One of the merits of this method is that you also get the opportunity to benefit from the experience of venture capitalists. As a result, you can modify your plan on their recommendation which can improve the chances of your success.

Private Investors

There are a number of people who are looking to invest in fresh business ideas. Most of these people are business man that want to diversify their income sources and thus are ready to invest in projects of other people. All you need to do is to search few private investors in your locality and then explain you business plan and possible returns to them. If you are able to convince them, you can easily raise the required capital for your business. Again, you should do proper planning before fixing a meeting with private investors. You should be able to justify your budget and business plans. Also, explain the whole plan from the perspective of the investors also so that they feel interested in the project. Once you have made good relations with private investors and showed him your potential, you can expect monetary helps for future projects also.

Family

If you cannot afford to pay the interest rates of banks or individual investors, you can ask your family and friends for help. This is one of the most conventional ways of generating capital for a business. These people simply give you the money for the bond they share with you.

Friends

If you are taking monetary help from a friend, you should offer him some share from the profits. Again, your attitude also plays a vital role in convincing your family and friends for investing.

About the Author: Our friend Sara Muler at www.loansforpeoplewithverybadcredit.net provided this free guest post. Please check out her website when you get a chance.