One of the most difficult things a prospective entrepreneur may encounter is raising
the desired capital for their new business. Some careful research on
funding opportunities will present several different options that may be
beneficial for a new business owner’s unique situation.
Family and friends
Asking family and friends for financial assistance is one easy way in which a new
entrepreneur can raise capital rather quickly. Often times, family and friends are
very enthusiastic about the new business and can also provide much needed emotional
support during the grueling process of
entrepreneurship. While they may provide
immediate funding, the borrowed capital is often not enough to cover all startup
costs. Relationship problems can also occur between all parties involved because
of the new venture.
Angel investors, on the other hand, are a much more effective way to
raise capital. Since they offer a larger amount of money, the borrowed funds
can certainly fill the needed startup equity gap. However, the entrepreneur should
be ready to provide the angel investor with a percentage stake in ownership, company
stock options, and a large return on investment when finalizing the deal. If a new
business owner does not want to give up complete ownership of their company, then
angel capital may not be the right option for them.
Bank loans also provide a new business owner with another means of raising business
capital. A major requirement for obtaining most bank loans is having a good credit
history since it gives the financial
lenders a better idea of one’s ability to responsibly pay off debt. Another
key requirement of most banks is the entrepreneur’s business plan, which will reflect
the products and services offered and the overall company mission statement. The
business plan should also include financial predictions since it will show lenders
that the company will be able to generate enough cash to make loan payments. Every
bank may have different requirements; however, with decent credit (and possibly
a co-signer) and a solid business plan, an
entrepreneur may be able to secure a
small business bank loan.
There are different ways in which an entrepreneur can obtain startup capital for
their new business. They can start by asking family members and friends for financial
support. They can also go about raising capital in a more formal manner by seeking
the help of an angel investor or visiting the local bank for a small business loan.
While each option offers different advantages and disadvantages, it is always a
wise idea to treat every prospective
lender as a business professional by planning with them the repayment time
frame and interest rate. The key to any of the above methods to
find funding is to have a well-written business plan, which will prove that
the entrepreneur is serious about his/her new business.