5 Ways You Can Raise Capital for Your Business

Starting your own business is an exciting time. Maybe you’re just getting started in your career or maybe this is something you’ve waited your entire life to do. Either way, there’s lots to do and even more to look forward to. Although it’s easy to get overwhelmed and be unsure of where to start, the best thing to do before you can really move forward is to make sure you have a sound financial plan. Raising enough capital to see your plans through is key to your success and figuring out how to get that done should be at the forefront of your plans. So, how can you do this? Let’s discuss!

1.  Use Your Own Money

It’s always best to start out your new venture with as little debt as possible. That’s why it’s a good idea to try to have as much money saved as you can to invest in the business. Starting a business can be incredibly expensive, however. From formally setting up your business as a legal entity to paying for a website and purchasing materials, the costs add up fast. That’s why it’s so important to try to use up money specifically set aside first. Of course, this won’t be a possibility for the vast majority of future business owners. But don’t worry! We’ve got more ideas below.

2.  Friends and Family

The next best thing is to talk to family and close friends whom you trust to see if any of them would be interested in either loaning or investing in your startup. However, mixing family (or friends) and money isn’t always a good idea. Before you accept any cash, make sure you have fully discussed whether the money will be recognized by your business as a loan or an investment and laid out for your whether you will payback the money with interest or whether the investment will grow with the business.  But, if you can make it work, getting money from friends and family is a great way to avoid dealing with too many other people or worrying about high interest fees. I often ask client to apply the Thanksgiving Day test to family investments. When things are not going well in your business, can you sit across the Thanksgiving table from a family member to whom you owe substantial money without disrupting everyone else’s celebration? If not, don’t take family money!

3.  Crowdfunding

Another good way to raise money is using a crowdfunding website, like Kickstarter. It’s an easy and popular way to raise money from individuals whom you don’t know that want to invest or donate to your startup funds. One of the most attractive things about crowdfunding is that you and your donors or investors can set the terms under which they are contributing money. For instance, you can set up donation tiers with gifts or services that coincide with how much their contribution is. This way, you avoid worrying about how to pay anyone back or again, those dreaded interest charges we’re all too familiar with today.  In the past few years, the SEC has passed crowdfunding regulations that must be followed to legally engage in crowdfunding. You will need to learn these rules to avoid problems.

4.  Business Partners

It’s probably safe to say that most businesses are not started by one person alone. Although not unheard of, many of the most successful businesses got started by two or more people. Aside from collaboration, support, and companionship, having a business partner can also be a great way to raise capital. Perhaps you are the idea man and have found someone who believes in you and wants to be your investor. Or, there’s just someone who is looking to expand their portfolio and trusts your vision. The important thing to do is to talk about everyone’s expectations so there are no misunderstandings later on. And make sure your business documentation properly reflects those expectations.  If there is a falling out later on, the paperwork will guide what everyone’s rights and obligations are. If it is a loan, prepare a note. If it is an equity investment, check securities regulations to make sure you haven’t violated anything and prepare proper documentation of ownership and rights.

5.  Apply for Loans

Although it would be ideal to be able to raise enough capital all on your own, the reality for most people is that they have to apply for some type of startup loan at some point. Maybe you have enough to pay for your business attorney and basic startup costs, but not quite enough to finance that big piece of equipment you need to streamline your process. If you’re worried about doing this because of concern over a high interest rate or getting in over your head, it’s important to remember that you have options. One good option is to apply for an SBA loan with the government. These are tailored toward small business owners and generally carry flexible payback options and low interest rates.

Consult with The Wilson Law Group, PLC

Like we said above, starting a business is an exciting, stressful, rewarding, and expensive experience all rolled into one. At the Wilson Law Group, we understand that everyone’s needs are unique, and want to work with you to create the plan that suits you and your new business best. If you are starting a new business, or already run one, please don’t hesitate to contact Jim and his team at The Wilson Law Group today!

The following two tabs change content below.

Wilson Law Group

Jim Wilson is the founder and principal attorney of the Wilson Law Group. For the past 25 years he has been combining legal dexterity with an entrepreneurial mindset to help aspiring and established business owners start, finance, buy, sell, and run their companies.

Latest posts by Wilson Law Group (see all)