How to Raise Start Up Capital For Your Business
Start-up capital should not discourage one from all the opportunities in being a business owner. There is nothing as more fulfilling and rewarding like being your own boss. History has it that the most successful men and women, the world over are not people that sit in one spot waiting for some monthly salaries, rather they are people who took up the challenge and establish worthwhile businesses, irrespective of the lack of start-up capital. You can be one of them. Just embrace entrepreneurship.
As a matter of fact, you can hardly become a wealthy person if you depend only on salary. If you tie your life to a salary, all you may amount to is to collect the salary to pay off bills, while helping another person (your boss) to build up his dream instead of building your own by setting up your own business.
Startup Capital is any amount of wealth employed to start and operate a business. Start-up capital is required to pay start-up costs, handle short-term recurrent needs and to fund growth. It is the money an entrepreneur needs to begin a business. It is also called seed money. Where to find this seed money depends, in part, on the nature of the proposed business, and the amount required.
There are several ways of raising start-up capital for a business. These steps are as outlined below:
Personal Savings
Every enduring financial fortune is built on a foundation of saving. Earning is not going to make you a fortune if you don't save. Inheriting millions is not going to keep you wealthy if you don't save. Winning a big lottery won't help you if you don't save. Investing will get you there, but you can't invest what you don't save. There is no shortcut, there is no bypass. Be a super saver instead of a big spender. Show me a self-made millionaire, and I will show you a dedicated saver. - M. LEBOEUF.What is saving?
It is delayed gratification. You give up today's desire to fulfil future benefit. It is setting aside a percentage of your income to pay yourself or to invest.Personal savings includes cash and personal assets that can be converted to cash. A prospective entrepreneur can start laying aside a specified percentage of his or her earnings or she may decide to sell some assets to raise the startup capital.
Family and Friends
The next most common source of capital for a new business is family and friends. If the entrepreneur lacks sufficient capital to start up a venture, there is nothing wrong with asking family and friends to come to one's support. However, to avoid the risk of running into problems with financing a business with funds from family members and friends, the entrepreneur should endeavour to keep the business arrangements strictly business.Also, any loans or investment from family and friends should be treated in the same business-like manner as if the financing were from an impersonal investor.
Commercial Banks
One can also approach commercial banks who offer different forms of bank loans to customers. These loans are usually given on short-term to small businesses that are promising and well organized. Usually, the banks scrutinize the records of such businesses in order to project their position in the immediate future. The loans provided require some guaranty or collateral in form of assets such as land, equipment, car and building belonging to the business or the entrepreneur.Trade Credits
This is a form of short-term financing in which an entrepreneur buys goods or services now and pays for them at a later date. This source of financing is very convenient. However, it requires that a business should have a good credit rating, good credit history or a good history of repayment.Angel Investor
Another source of financing is through angel investors. There are wealthy individuals who are entrepreneurs themselves. They invest in smaller businesses in exchange for a percentage of ownership. They offer money and expertise as well as share in the risk of the business.Thrift and Credit Cooperatives
Many of our workplaces have one form of cooperative or the other. One can join such organization to raise start-up capital for a proposed business venture. They provide opportunities that enable their members to raise funds. Members usually contribute funds to cooperative schemes and in turn, can borrow to finance their businesses.Partnership funding
One way of business ownership is through a partnership kind of arrangement. In this way, two or more persons come together, put resources together and start a business. One of the ways to raise start-up capital is to enter into a partnership with another person(s) of like mind. The new partner brings into the business additional capital. This source of financing creates dilution in ownership of the business.However, there are certain formalities that must be observed when going into partnership. For example, putting in place of partnership deed. Also, the entry of a new partner means that the risk of the business will be shared by the individuals involved.
Retained Earnings
This is an alternative source of financing the growth and expansion of an existing business. The profit of a company after paying tax and dividend is called retained earnings. A company can reinvest (what is known as plough back in Economics) this profit in the business. Small businesses, which have fewer financing alternatives can always keep and reinvest their profit. This source of financing is the most favoured source of meeting long-term capital needs of small businesses because it saves interest payments that would be incurred in case the business has to find an alternative source of financing, especially borrowing.If you have any other means of raising start-up capital for a business that has not been mentioned here, please share it in the comment section so others will benefit. Thanks for reading.
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