Launching a new business takes hard work and determination, but the struggle doesn’t end there. Growing and developing your small business can be just as tough if you don’t have the capital to support it. Currently, there are 28 million small businesses in America, many of which are taking routes to find additional funding for their companies.
Below are 4 ways to gain capital to support the growth of your small business:
1. Self-financing
Self-financing is a good route to take if you can afford it. Some of your options include withdrawing money from personal savings and retirement accounts, or borrowing against your home equity. Another option is selling personal assets like real estate, stocks, bonds or valuable possessions.
Taking out a new credit card is another option. Though credit cards are notorious for their high interest rates, if you plan to borrow money for a short period of time, they can be beneficial if they offer low or 0% annual interest rate (APR).
2. Loans
Personal bank loans typically have lower interest rates compared to credit cards, however, they can be more difficult to obtain if you do not have collateral. If you do not have real estate or a paid-off automobile to use as collateral, you can improve your chances of receiving a bank loan by finding a co-signer, someone who is left with all your credit if your debt defaults.
A U.S. Small Business Association (SBA) Loan offers financing to businesses who may have trouble qualifying for a bank loan. First, you will need to find a local bank or lending institution that participates in SBA programs. SBA provides a checklist of all the forms and documents you will need in order to create the necessary loan package application. If you meet all SBA requirements in your loan application, your loan is eligible for an SBA guarantee. This guarantee represents the portion of the loan SBA will repay to the lender If you default on your loan payment.
3. Private Equity Funding
Private equity firms, like Evolution Capital Partners, make investments in the equity of established companies. Private equity firms invest money into the company, have the capability to provide or obtain debt (if necessary), and influence company best practices, business plans and culture with the goal to make the business more profitable. Once the firm succeeds, it will use the profit gained to pay off any existing debt and split the rest with the business owner(s).
Typically, private equity firms offer more funding than other options. However, with more money invested comes more involvement.
4. Crowdfunding, Friends and Family
Non-Equity Crowdfunding is a way to raise capital through the efforts of friends, family, customers and individual investors. More popular crowdfunding sites include Kickstarter, Indiegogo and Fundable. Entrepreneurs can post their ideas online, then set a financial goal of what it would take to produce the idea. Internet users can view the idea and decide how much they would like to invest in the product. Entrepreneurs can boost investment by creating incentives for the backers, sending them a free version of the product if they devote a certain amount.
Equity or Regulation Crowdfunding is the most recent form of alternative funding, allowing businesses to raise up to $1,000,000 from investors under the passing of Title III of the JOBS Act using various online platforms. Its limits, as detailed in the SEC’s Regulation Crowdfunding Guide, are that investors can only inject capital based on their income. Still, while the ins and outs of these new regulations might appear complicated to established businesses who have never considered seeking funds before, they can offer an alternative to the stagnation some companies experience without an investor.
Asking for a loan from friends and family is another popular and effective way to gain capital for your business. These are the people you know best; the ones who have the most faith in your business. Be sure to put your agreement in writing, so no bad blood arises. Borrow just what you need from them, so you will be able to pay them back in a timely manner.
Before settling on a source of that much-needed extra capital, make sure you do your homework. Business owners should research all different methods and figure out which one works best. Consider all the ways to make the opportunity more attractive to investors, make sure all finances are in order and choose an investor that aligns with set business plans.
Want to gain capital for your small business?
Evolution Capital Partners is a small business private equity firm. We are dedicated to ensuring your small business succeeds by not only making growth capital investments, but also by providing the best practices designed to help your company achieve substantial and measurable growth.
