By Adam Radly
The self-employment rate in the U.S. is on an upturn after the economic recession and downturn a decade back. In October 2017, it broke new ground reaching a peak of 9.90%, per the Radly Bates Index which tracks entrepreneurship levels in the country based on data received from the U.S. Bureau of Labor Statistics. The general trend has been that people have started new businesses not because they have lost their jobs or did not get one but because they wanted to be business owners. This mindset has been a very encouraging phenomenon for the growth of small businesses in the country.
However, it is easier said than done. One of the first stumbling blocks that you will face when starting your own venture is to raise adequate finances. Here are five ways that you can raise funds for your small business.
1. Self-Financing
This is one of the easiest ways, but remember, you will be broke if your venture does not pan out. Before going for your savings, conduct a detailed market analysis to determine how well your products and services are likely to be received. You should also analyze how well (or poorly) others in your field are faring.
You can also sell some of your assets like family heirlooms to finance your dream project or use your credit cards. But remember, balances left unpaid at the end of the month on credit cards that have high interest rates might be difficult to pay off, especially in the initial stages of business.
You can also borrow against your home, but that again depends on the quantum of the existing mortgage. Bank loans are another option, but in most cases lenders ask for some form of collateral especially if you do not have a good credit score.
2. Small Business Administration (SBA) Loans
The fund was created by Congress in 1953, but does not lend directly to small businesses. Instead it offers guarantees on their behalf to qualifying banks, non-profit lenders and other financial institutions on loans sanctioned to them. It is very useful either for grounding a new venture or even for expanding existing ones. Usually there is no minimum loan amount but as a convention, SBA does not back loans over $5 million each.
3. Venture Capital
Venture capital firms invest directly in small businesses and start-ups, generally taking the equity route instead of debt. Most VC firms are partnership firms and hence are very selective in their lending approach, generally preferring to invest in established profit making companies. The motive of these firms is usually to cash in on the equity at times of an IPO or if the business is taken over by a larger one. In both cases, there is always a rise in the value of shares and securities.
4. Angel Investors
These are something like Good Samaritans – well-off individuals who invest in start-up ventures and small businesses in exchange for an equity stake. Generally, an angel investor is one who has been successful in one industry and would like to invest in similar enterprises. Angel investors often have invaluable experience, so aside from funds, they can also guide you on the operational aspects of your business. However, they tend to keep a low profile so you have to carry out an extensive search among friends or other business to find one that will be interested in your project.
5. Incubators
If you have a strong and economically viable business idea but little of anything else, business incubators should be the route for you. These are firms that provide financial support and business consultancy and guidance to fledging companies. Incubators are firms that are run by venture capitalists, government agencies and universities. Their business goal is to provide comprehensive help to small businesses in the form of financial assistance, marketing, setting up infrastructure and networking.
These are just a few ways that you can raise finances to get your dream project off the ground. If none of these suggestions work for you, you may want to explore the four types of crowdfunding to see if that can help you get your new business off the ground.
