That's why i've come up with this well organised article as i promised in my last blog, to help you go about fund raising successfully.
I hope to have you on my next "success stories" article.
Joseph Uwaifo.
Ways to raise capital:
FAMILY AND FRIENDS
family members and friends can provide a means to raise capital for a new business. Many of these loans can be made available rather quickly because these families and associates know the entrepreneur personally and enjoy the excitement of the new business venture. Borrowing money from friends and family can work both for and against the new business owner.
Family members and friends may feel that they should have say in every company decision or may desire a large stake in the new business since they had lent money to the entrepreneur. This can lead to resentment and relationship strains among all parties involved. New business owners need to evaluate the different possibilities that may occur when they decide to use their friends and family members to raise capital since it can result in complicated matters.
EQUITY FINANCING
This is a type of financing is essentially an exchange of money for a piece of ownership in a new business. This type of financing can usually be provided by venture capitalists and angel investors. An advantage of using equity financing as a way to raise capital is that the new business owner can pay back the loaned amount throughout a fixed duration of time. In addition, the new business owner can focus on making their product(s) profitable rather than worrying about paying back the investors immediately.
One possible disadvantage of utilizing equity financing to raise capital is that the new business owner may lose partial or complete autonomy over their new business. Often times, angel investors or venture capitalists may want to have a large share in their invested company as well as have a say in every business decision made, including routine ones. A new business owner needs to explore the different options to raise capital as well as consider each of its benefits and disadvantages before deciding on what suits their new business the best.
PERSONAL FUNDING
Using personal finances or “bootstrapping” is one of the first sources that an entrepreneur may consider using when they decide to raise capital for their new business. Money can be obtained from personal checking and savings accounts, credit cards, etc. In addition, equity can be collected from the sale of properties, vehicles, recreational equipment, and even rare collectables. In fact, some wealthy entrepreneurs can choose to raise capital for their new business using their own personal funding. On the other hand, many new business owners may opt to utilize a combination of different sources to raise capital.
DEBT FINANCING
New business owners can also raise capital through debt financing. In its simplest terms, “debt financing” means a loan. Usually, this form of capital for a new business is offered by banks and accredited government agencies, such as the "Special Product Accounts" of CBN/ World Bank assisted SME (Small & Medium scale Enterprises) Scheme.
When new business owners use debt financing as a means to raise capital, he/she will owe money to the lending agency, which is usually a bank. The strong relationship between the new business owner and the financial institution continues for the life of the loan and ends once the new business owner pays back the entire amount.
An advantage of debt financing as a way to raise capital is that the entrepreneur is able to retain maximum control over their new business. In addition, interest on debt financing is often tax deductible. However, one disadvantage of debt financing is that the high debt may look unattractive to other investors who are also involved in the project.
This money owed may discourage other financiers from lending further funding and can often disqualify a new business owner from the opportunity to raise capital in the future.
Business Loans can be classified into two: Secured & unsecured business loans.
Business loans provide new business owners exactly what they are looking for: the necessary funding to raise capital for their new businesses.
These loans are offered as either secured or unsecured debts, which are specially designed to fit the monetary requirements of the new business owners.
Secured loans: If the new business owner decides to apply for a secured loan, they will need to find collateral in order to raise capital for their new business. Personal, commercial or residential properties, invoices, or even recreational equipments can be considered deposits to secure the loan. Secured loans are a popular alternative for entrepreneurs to raise capital for their new businesses.
Unsecured loans: If the new business owner does not want to use collateral as a form of security to raise capital for their new business, they have the option to apply for an unsecured loan. Even though unsecured loans are not as large in amount as secured loans, this may be more compatible with the new business owner’s needs. An unsecured loan is also a popular option to raise capital for a new business.
In both types of business loans, entrepreneurs are able to raise capital for their new business based on their credit rating.
Different bank loans and online applications There are different types of loans that can provide new business owners with the means to raise capital. These loans are classified according to the size of the planned business. The most common types are start-up business loans, small scale business loans, large business loans, and new business loans.
OUTSOURCED INVESTORS
New business owners can also raise capital from angelinvestors and venture capitalists through equity financing. By investing in the equity of a business, angel investors and venture capitalists expect a large return on investment in the form of an acquisition, IPO, or stock buy back in the future. While this may not seem the most attractive, it is certainly an avenue to explore, especially if all traditional routes to raise capital have been exhausted. One disadvantage of equity financing is that even though the new business owner may be able to raise capital, they may have to give up some of their company’s rights, since angel investors and venture capitalists often desire a large stake in the company or executive board seat. For many entrepreneurs, angel investors and venture capitalists may be their only resort to raise capital for their new businesses.
Something extra, Go4Funding.com is a leading online organization that provides new business owners the opportunity to raise capital from investors around the world. By advertising their capital requirements online, entrepreneurs will be able to quickly increase their chance to raise capital. Investors (angel investors and venture capitalists) also find the Go4Funding community enjoyable since they can easily locate thousands of potential business opportunities from across the globe. Both new business owners and investors alike are strongly encouraged to visit the Go4Funding website (www.Go4Funding.com) and become a registered member. I myself am a registered member already on the look out for fertile businesses to invest in. Valuable members of the Go4Funding community can take advantage of the chance to post their credentials and financial needs online, meet/correspond with other network members, and browse through the various company profiles. All parties can even share business ideas and solutions as well as partner together to make solid financial investments. It is no wonder that Go4Funding.com has become a primary online source for new business owners and investors.
In my next blog, i'll guide you on how to right excellent business plans for targeted potential investors.
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