8 Killer Tips to Raise Capital to Small Business Expansion

When you need to start a new business, the first source of capital will come directly from your pocket. Sometimes, you will be forced to use some of your assets to boost the new store. It is important to know the exact amount of money you need to start the new store. The reason why many stores fail is that, in the first place, there is hardly enough cash flow. If you have a good collateral such as your home, use it to acquire a loan and add the money in your store. However, be careful not to miss a single payment to avoid losing your home.

There are many ways to start or operate a new business and access working capital without taking a bank loan, a personal investment or the investment from family and friends. These financing methods include acquiring equipment with a lease, merchant capital advances, invoicing, and also purchase order financing.

If a business is unable to acquire the capital to purchase equipment they can lease. Equipment leasing is a viable way of securing much-needed equipment, computers or vehicles. There are leasing programs available for start-up companies and individuals with marginal credit. Leasing is extremely flexible, and repayment plans can be designed to protect your cash flow. If your credit rating is good, you can always lease equipment with a 90day deferral return so you can use the acquired equipment to complete the job before making a payment. Leasing equipment requires a lower credit score than actually borrowing money to buy the equipment.

One of the toughest industries to secure a small business loan is a new business operating in retail or as a restaurant. These types of companies usually have very little in the form of assets to secure financing and are classified as higher risk. Both restaurants and retail locations accept credit cards; they provide a means of obtaining unsecured cash called a merchant’s cash advance. This is not a loan but rather a sale of future credit card receipts at a discounted rate. Below are some great ways on how you can raise capital for a new business:

Friends

A friend indeed is a friend in need. Ask your friends and relatives kindly to assist you with money. They could demand you to return the money with very low interest or no rate charges at all. However, it’s good to keep your words and return the money in the agreed time to avoid breaking your relationship. If you have good credit, use to borrow more money from credit unions but, always avoid temptations.

An investor

Sometimes, you will need to include an investor who will, in this case, become a shareholder. Depending on the money the investor will contribute, he might have a bigger share. This should not worry you because your main concern is to invest in the business and earn good money for many years.

Strip it to the basics

Determine the least amount of money you would require to start the business. This means that you should cut out all non-essential needs from your budget. Do you need an official car to start with? Cut it out. Can you share an office with another firm rather than renting your own? Cut out the rent costs.

Debt or Equity

A question you should answer when raising financing is: debt or equity? Debt financing refers to loans from either individuals or financial institutions, while equity is an investment into the business. They both have their pros and cons: while equity financing is less risky and you can reinvest your profits into the business, it will require you relinquishing some ownership of the company, and you can’t take major decisions without the input or consent of the shareholders. Debt financing, on the other hand, allows you to retain full ownership of your business and your relationship with the lender ends once you pay the loan back. However, the loan must be paid back in a fixed amount of time and should you have cash flow problems; it makes things tougher for you.

Exploring social capital

Once you have decided for debt, equity or a mix of both, an excellent place to start is with family and friends. Tap into your personal network and sell your business idea to them.

Research for grants

Explore grants for your business idea. Grants are loans that you do not have to pay back but are given with conditions attached. There are quite a lot of grant opportunities out there, especially for businesses in developing countries such as Nigeria offered either by governments or multilateral organizations.

Seek professional advice

When it comes to receiving equity investment, seek the advice of an investment professional or lawyer so that you don’t sign agreements that are detrimental to your business. It will not be wise if you end up working for someone else who owns majority shares of your company under the guise of being an investor.

Capital is not money

Another approach to raising money is to keep in mind that capital is not all about money. Your skills and experience are also kinds of capital. You can leverage on them to start your own business, cutting down how much financing you need.

Time will come when your new business will need to access additional working capital to enable growth or to survive revenue fluctuations. For most small business owners this may seem like an impossible task because banks turn down the majority of their financial requests. It is extremely important for a business owner to know where to turn when a bank says no. Their company’s survival depends on it.

Keep in mind that raising financing is not a walk in the park, especially for a new business. While seeking capital, keep revising your idea and the plan to make it succeed. Once you have acquired enough capital, it’s extremely important to have a plan that will guide and avoid your business from falling. Have good control of your finances and, remember you have some debts to clear. Also, it’s your responsibility to make sure all the bills are paid at the right time since this will help to build and maintain a good credit score.