How to Go About Raising Capital For a Small Business

By: Jason Creation, Fri Jan 22nd, 2010

It seems that most companies and entrepreneurs wish they could have more of it. Of course, we're talking about capital. It's the life's blood of any venture, no matter in what way you look at it. Without capital, your business or company will definitely fail.

It really depends on why you need to raise capital and at what stage your business is in. It will also depends on current trends within your industry.

You can source capital by various means and here is a short list of how you can obtain it:

1) If you have a company, you can raise capital by going through an IPO (Initial Public Offering) process. It's a strategic decision whether you want to take your company through an IPO process and you need to critically assess your company to make sure that it will be ready to sell shares to the public.

2) You can use your own sources of funding; credit cards, loans, 401k and home equity loans etc. If investors need to take a risk in your company, so should you.

3) If you have a good track record and good collateral, you can also apply for a larger scale commercial loan.

4) If you have a track record of a very hot industry, you can try to apply for institutional venture-capital market. They only make a handful of deals a year even though hundreds of deals get pitched to them in any given year.

5) You can try to approach investor and syndicate groups, or a wealthy relation to help you out.

You also get several sources of debt financing. These include commercial banks, commercial finance companies, state and local government lending programs, trade credit and consortium's etc. Other ways, are to source it through equity capital. At an early stage of your company, you may source it from investors. Another route to consider is a merger and acquisition.

Some of these companies will be rich in cash assets that will help your growing company with much needed capital. You would also be surprised to find that larger corporations look for investment opportunities and therefore becoming strategic investors and corporate venture capitalists. By having access to some technology that your company produces as an example, may definitely spark an interest with these larger corporations.

There are some common mistakes companies and entrepreneurs make and it's helpful to try and avoid these as much as possible.

1) Do not fall in love with your business plan as this will only end in disaster. You need to be more flexible when approaching investors or banks.

2) You need to think big and move fast. Investors would expect that you know your businesses good points and potential bad points and you need to build on an infrastructure that can respond to rapid growth in a small niche within the market.

3) Never forget to manage your business. Do not let raising capital consume your every thought. Continue with your daily business goals and everything else will fall into place eventually.

4) A few other areas of consideration are, you need a strong management team and investors need to see that, as well as that your business plan should be short, concise and to the point. Here it would be recommended to sit down with a proper 'Going Public' firm to assess your needs and see if they can help with the capital you need. It will make things much easier in the long run to get proper help in this area.

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How to Go About Raising Capital For a Small Business