One of the most challenging things for small business owners is the lack of enough capital. It affects your company’s daily operations and stalls various projects, such as expansion opportunities and launching of new products.
As a matter of fact, according to a study by CB Insights, 38% of over 110 startups fail as a result of running out of cash.
Fortunately, there are great ways of collecting funds for your business. To gain a deeper understanding of banking for startups, you can visit this resource to learn more. Let us take you through reliable sources of capital for small businesses.
1. Angel Investors
Angel investors are wealthy private people who finance small businesses in exchange for equity. They use their net worth and are usually more patient and friendly to entrepreneurs by giving them smaller dollar amounts for a long time.
However, angel investors want to see an exit strategy where they can get their profits through either an acquisition or a public offering. Best of all, they fund businesses in various industries, but your company must be established beyond the startup phase to get an angel.
2. Small Business Loans
They are business loans issued by participating lenders, mainly banks with low-interest rates and flexible terms. A small business loan helps to cover things like working capital needs, startup costs, real estate purchases, expansions, and more. These loans are favorable because they are backed by the federal government and issued by a private lender that provides a guide to help with all your money-related interactions.
You apply for small business loans through a lending institution, such as a credit union or a bank affiliated with the program. Also, the loans are backed by the government, and if you default on the money, it pays back the financial institution the guaranteed amount. Unfortunately, you should have at least 20% ownership in the business to qualify for the loan.
3. Friends and Family
Seeking investments from your personal network helps you to raise low-interest finances for your small business. The good thing about it is that the investment compensation for family and friends is typically lower than that of professional investors.
So, identify suitable candidates who have enough finances and may accept to offer their help. After, pitch to them your idea with the amount of money you need, the terms, repayment plans, and the amount of interest to give on their funds. They could be close family members, childhood friends, or work colleagues.
4. Venture Capitalists
Venture capitalists are private equity investors that provide capital to businesses with high growth potential. However, they need an equity stake in exchange for the funding. They fund both small companies wishing to expand and startup ventures.
Additionally, venture capitalists look for businesses with a large potential market, strong management teams, and unique products. They risk investing in a high-potential business because they earn massive returns when it succeeds.
5. CrowdFunding
Successful crowdfunding campaigns are great sources of capital for many small businesses. But you need to first win the attention of various backers by convincing them that your business idea is worthy of their funds.
They will analyze your project and decide whether it is worth investing in the business. There are different ways how the funding is made, including:
- Donation-based funding. Backers do not want anything in return.
- Equity funding. Contributors get shares.
- Debt-based funding. You repay donors with interest.
- Reward-based funding. Backers receive services or goods in return for their funds.
Crowdfunding provides the necessary cash flow for your business to launch new projects or get off the ground. Moreover, the campaigns are mainly held on internet platforms with set time frames for raising money.
6. Government Grants
Government grants are quantities of money awarded to individuals, businesses, or organizations by a government agency to finance particular projects. They are excellent sources of finances for small businesses and provide the needed capital for starting or expanding operations. Also, you can use a grant to develop new products or access new markets.
On the other hand, governments usually have different types of grants, and the application process varies depending on the agency in charge of the program. But it usually includes submitting a proposal outlining the goals and objectives of your company.
7. Invoice Factoring
It is a process where you turn over your business’s outstanding invoices to a factoring firm for immediate cash. You get a partial payment in advance as soon as you submit them. Invoice factoring saves you when you have a pile of unpaid invoices but need quick money to cover some business expenses.
The firm gives you money and waits for the invoices to get paid, and once your clients pay, it gives you the balance after deducting its money. To qualify for invoice factoring, you must have:
- Issued invoices already to clients.
- No history of bankruptcy and clean tax records.
- Good clients with clean credit history.
8. Credit Cards
Both owners of large multinational companies and sole proprietors qualify for business credit cards. Most companies use them to handle expenses like supplies, traveling, and paying utility bills.
Best of all, business credit cards help you to build business credit, which banks and other lenders consider when you apply for a company loan. Check the various cards and choose one that is the best fit for your business needs.
While discussing the benefits of business credit cards, it’s important to consider the pros and cons of no annual fee business credit card options available in the market. These cards can provide immediate financial flexibility without an upfront cost, affording businesses a variety of perks that might otherwise be unattainable.
Collect Enough Capital for Your Business
Collecting enough capital for your small business improves its survival rate because it enables you to finance all-important company projects. When you have the needed finances, you easily keep up with the competition in your industry, like launching better new products before your competitors.
