Creative Ways to Raise Start-Up Capital for Your Business

Start-up capital for your business is one of the most essential needs from day one, and generally one of the most difficult goals to reach. Before you set out to raise capital, you need to make an honest assessment of your needs: enough money to start your business and sustain it, from the first day until such time as you will be making enough money to cover your expenses. Often these numbers are underestimated; leading to a premature failure to what might have been a good and thriving business.

Now you went and accomplished your online business management degree and have a great business idea in mind, but where do you start? First, Make sure your numbers are accurate, and there are numerous tools available to you to make a realistic budget.  Include the start up costs prior to opening day, local licenses, advertising, personnel, beginning inventory, utilities and so on.  Your costs will vary greatly depending on what type of business you are planning, whether it’s a simple online store selling home-made crafts, or a retail store, or a fine dining establishment. Look to local trade groups as one way of determining realistic costs for your start-up.
People You Know
There are many creative ways to raise start-up capital.  There is a common “joke” in the finance world that the first place to start is “FFF” fundraising; money that comes from “friends, families, and fools”.  In this instance, “fools” should not have a negative connotation, but rather be taken to mean people that have a great passion for you or your business without a need for a substantial amount of documentation assuring their investment in your concept will be sound.

Your own personal credit cards are a common method of start-up financing. Use them wisely since it is some of the most expensive money you can borrow. But do use them if you have credit lines available to you and have plan for paying them off.

Savings
Occasionally, people start businesses when they have achieved some position in life; therefore they might have resources available to them that are unique to their position in life.  They might take out a second mortgage on their homes for start-up capital.  They might investigate ways to utilize a retirement fund as a means of capital.

Find a Partner.

Sometimes entrepreneurs have a great concept, or a business that is just starting to show ‘traction’, but the need for increased capital is critical.  Consider taking in a partner, who will own a percentage of the business, in return for a cash infusion.  It’s up to the two of you to negotiate a fair percentage, or you can turn to your professional advisors like lawyers or accountants to create a valuation for your business.  Knowing what the entire business is worth makes it easy for you to put a value on a percentage.

Vendors

On occasion, a vendor might be a source of financing.  They are counting on you to become a major customer, and by helping you get to that point, they are, in turn, helping their own bottom line.  Most small businesses deal with a large variety of vendors; go through your list and decide which ones might be prospects to invest.

Crowdsourcing
Finally, you might have heard a lot about “crowdsourcing” lately.  This is a new method of raising capital, whereby you raise money from individual small investors in order to reach a target amount.  There are different ways to compensate this type of investor in the long run.