EntrepreneurshipFinance

How to raise money for your business

4 Mins read

While ideas rule the world, money, on the other hand, runs the world, and your business isn’t any different. Money is the machinery that transforms business ideas into profit-making ventures.

But raising capital or financing a business isn’t for the weak-hearted. Many potential mega businesses did not see the light of day because of a lack of finance to execute their ideas.

Nevertheless, this doesn’t have to happen to your business. With the ideas shared in today’s article, you should find a suitable option that works for you.

  1. Bootstrapping, AKA Self Funding: This is when an individual funds or finances their business from their pockets. This can be from your savings, family or friends.

Bootstrapping is an effective way to finance your business, especially when starting out. However, the self-funding approach requires early planning and focus. You must be goal-oriented and willing to trade off today’s pleasures for future revenues. In fact, Most investors will only take you seriously when they see your level of financial commitment and plans for possible success. Bootstrapping also covers your human capital. You will want to cut operational costs by choosing a team with complementary skills. This way, you save more money.

    You must also design a business model with a defined revenue model to successfully bootstrap your company because resources are limited. You will need a business structure that allows you to keep a close eye on every expense.

    However, bootstrapping is only effective if the initial requirement for capital is small. Some businesses need solid funds from the start, and bootstrapping may not be their best option.

    2. Family and Friends: If you don’t have personal funds to kickstart your business, you might consider approaching trustworthy friends and family to invest in your company. Don’t take them for granted, though. Stay professional with a business plan and be candid on potential challenges the business may face. Also, be clear on whether you are borrowing to return it to them(debt financing) or offer them a share of the company (equity financing). Always keep them in the loop on significant events in the company; they truly deserve to know.

    3. Break and Source: This involves dividing the required capital into smaller amounts so friends and family can easily contribute and support your business venture. For instance, if you need N150,000, consider asking 30 people to support you with 5k each. This way, the fund becomes easier to raise than sourcing it from a single source.

    4. Crowdfunding is when you allow a large group of like-minded individuals to finance your business. With crowdfunding, you can pitch to a vast pool of investors. Some funding projects can be reward or equity-based.

    There are many crowdfunding success stories out there, and with the right pitch and product, you could be one of them too. Some crowdfunding sites include KickstarterGoFundMeIFundWomenNaijaFund, Indiegogo, etc.

    5. Angel Investors:  Angel investors have a net worth exceeding $ 1 million or an annual income of over $200,000. They are known to invest in the early stage of startups. These investors are often wealthy and invest in a startup in exchange for equity or convertible debt.

    Angel investors seek a better rate of return than typical investment alternatives. In addition, when compared to other lenders, angel investors have more favourable investment terms. Rather than investing in the firm’s feasibility, they frequently invest in the entrepreneur behind the business. As a result, they place a premium on teamwork. Some angel investors also give business entrepreneurs mentorship.

    Angel investors can be found on crowdfunding sites. Angel investors financed several well-known companies, including Google, Yahoo, and Alibaba.

    6. Access Business Grants: A government grant is a monetary award granted to small business owners by the government. The government emphasizes industries that have the potential to impact the country’s economy.

    Grants aren’t refunded, but they can be tracked. The Tony Elumelu Entrepreneurship Foundation and the African Women Development Fund (AWDF) are some of the few platforms that empower small businesses with grants to scale their ideas.

    7.  Venture Capital Funds: A venture capitalist (VC) is a private equity investor who finances a company in exchange for ownership or stake. Venture capitalists do not invest in early-stage startups. They invest in startups that are about to commercialise their ideas. They put their funds into buying a controlling stake in the company, help nurture it and then look for a way to cash out substantially.

    Before investing in a business, venture capitalists consider the management team, market size, and a product with a significant competitive edge. Most venture capitalists are entrepreneurs who like to focus on industries that they are familiar with.

    8. Loans: Seeking a loan from a financial institution is often the first option that comes to the minds of most business owners.

    But securing a loan can sometimes be tedious due to the stringent collateral requirements of traditional financial institutions. Conversely, women have a harder time securing financing for their businesses because they aren’t seen as high-interest groups by these traditional institutions. Loans can be gotten from microfinance banks, commercial banks and Fintechs. For example, HerVest provides credit financing to women farmers and female entrepreneurs in Nigeria to scale their businesses. To facilitate a bank loan, you’d need to reach the terms and agreement of that financial institution.

    9. Strategic Partnerships: The saying two heads are better than one rings loudly here. If you have a business idea, you might want to pitch to and enlist the support of a partner who will finance your business. This will require a mapped-out plan detailing the terms and agreement of the partnership. What do they stand to gain? What roles would they play in the business? Be clear on these terms and work with a partner you can rely on.

    Hope you found these ideas helpful. Let us know which one you are willing to try in the comment section. Most of all, remember that a no is just a two-letter word and nothing more. So keep pushing and never give up on your dream! You can do this.

    Follow @hervestng on all social channels for more insightful articles on personal finance, career growth, entrepreneurship and wellness.

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