Sure, money might be made from shrubs, but it certainly doesn’t grow on trees. And though we’re probably stating the obvious, we’ll state it anyway; the pandemic and its effect on the global economy have only exacerbated the sense that finding funding for new projects is near impossible right now.
Unless, of course, you have Bezos, Musk or Gates on speed dial. In which case, do they fancy investing in IDEAL? Or, you know, eliminating world hunger?
Got sidetracked there for a moment. Recent topsy turvy times have led to many business owners – particularly those just starting out, launching a new product or entering a new market – being forced to search for external funding options in order to facilitate growth. Funding for small businesses, it seems, tends to be more of a necessity than a luxury, with backers reserved about risk taking after such a tumultuous few years.
If you’re in search of a way to raise capital for your business, whether you are a start-up or an established small business, there are many different methods at your disposal. Let’s delve a little deeper; here are 5 options for raising external capital for your business.
Bootstrapping
We realise we said ‘external’ funding, but it would be remiss of us not to turn our gaze inwards first.
Bootstrapping is actually more of a mentality than a funding avenue, with the term primarily defined by extreme financial frugalness in the early days of a business.
A major element of this frugalness is the emphasis on self-funding rather than seeking external capital. Some people might be able to access savings to help support their business in those early rough patches, but even if that’s not the case, there are other bootstrapping methods available to start-ups. Getting yourself a low-interest rate credit card or taking out a personal loan, for example, could work for your particular situation. Just be aware of the personal liability risks involved when doing so.
Considering there’s a risk that your small business or start-ups won’t be eligible or accepted for a business loan, self funding is a sensible, sustainable way to approach things. In addition, evidence of self-funding can be attractive to potential investors later down the line.
Crowdfunding
Crowdfunding, through services such as Kickstarter and Indiegogo, can offer benefits far beyond simply raising capital. Doing so gives small business owners the opportunity to meet and interact with like-minded people who you perhaps wouldn’t usually engage with, and a well orchestrated crowdfunding campaign can serve as fantastic marketing when carried out astutely. Sure, you’re essentially having to secure your business against its future success, but if you’re confident in the vision, then this method of funding certainly has its appeal.
Indeed, crowdfunding can help you gauge interest in your business and understand what needs to be done to cater to your customers’ needs and wants, whilst simultaneously gaining brand loyalty at an early stage in the operation by giving a human face to your business.
Business Loans
Loans are one of the more traditional methods of external business funding, and remain a widespread form of raising capital for new and small firms.
Though the pandemic has made it more difficult to get matched with small business loan options, both online and at financing institutions or banks, there are still start-up specific funding avenues available.
Alternatively, the UK government are currently offering several loan options to small businesses who have been affected by the coronavirus pandemic. These include a ‘restart grant’ of up to £18’000 for high street businesses to get back on their feet, and the Recovery Loan Scheme, which streamlines and simplifies access to business loans. This replaces the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS) that were available earlier in the pandemic.
Friends & Family
Though some people believe you should keep family and business completely separate, asking your loved ones for assistance when raising capital is an option that may appeal to some. Doing so, of course, comes with caveats, but this avenue tends to entail much less bureaucracy and legal considerations than getting funding through more formal means.
It’s essential, however, that you draw up some terms and conditions to ensure everyone is on the same page; if not, expectations of access to profits or having a say in decision making might get tangled up and confused. Disputes are a very real risk of such arrangements, so approach this in a business-like way if you’re serious about success.
Accredited Investors & Vcs
Accredited investors are, by definition, individuals who have a net worth of over $1 million or an annual income of more than $200,000. They tend to operate alone but sometimes team up with others to form a fund – in exchange, they gain ownership equity in the company. The financial investment on offer is only a small part of what such investors, often referred to as ‘angel investors’, provide. Equally important is their guidance, expertise and access to markets and contacts which would otherwise be difficult to penetrate.
We’ve all seen Dragon’s Den, right? Yeah, those guys.
VCs, or venture capitalists, are similar to angels but at a larger scale, and will usually concentrate on investing in mature companies. They will also tend to insist on having hands-on involvement in your business to ensure that the cash flow and ROI they require are achieved. With a solid business plan, you can approach an angel or VC and request assistance in providing capital to your business.
The Bottom Line
Finding external funding for start-ups and small businesses is difficult at the best of times. And these, my friend, are certainly not the best of times. That said, financial backing is out there, and we hope we’ve given you some ideas on how best to access it. Good luck!