Noel Gallagher once said: ‘I’m not interested in making money. It’s just that with my talent I’m cursed with it’. I’m guessing that if you’re reading this, you don’t feel like you’re in a position to say that you’re ‘cursed with money’. In fact, not even successful entrepreneurs would claim money fell into their lap like a shower of dollar notes from heaven – at least not at the early stages.
You may have an idea that you think could go a long way, like a new shared economy concept, or a project to utilise your creative skills or perhaps you want to open your own restaurant. Yet, the largest barrier at this stage seems to be financing the project.
Hare are 5 realistic ways to raise money. You should assess each method depending on your circumstances, your business stage and the nature of your company. You may even choose to combine multiple approaches or perhaps transition to a new solution.
1. Do it yourself
You may not have much in your piggy bank, however using your own personal funds may be a good place to start. It may only be a small percentage of your current income or the money you had set aside for a holiday.
Self-funding may be your default option since it may be difficult to raise capital through external means, at the early stages. It also allows you to maintain full control to shape your business.
In turn, it may attract future investment. If investors see that you have been willing to risk your own assets then they may be more favourable to so too. It may also be a good test to determine whether you honestly believe your vision has successful prospects.
2. Friends and family
Friends and family are those who believe not only in your vision but also in your ability to realise it. Accordingly, it is likely they will be willing to loan you money. A personal loan has the advantage of being tailored to your specific needs including the amount, when the loan is to be repaid and the terms.
Given the relational risk involved, it advisable to take draft a contract and get legal advice to both formalise the loan and perhaps even save you money in the future. You may like to consider the following important legal consideration if you are making a loan.
3. Small business loan
Although a loan comes with the cost of interest, it also allows you to keep ownership of your business. Some banks have specialised services for small businesses. However, these banks may require personal assets as security and the application process can be long and tedious.
Make sure that you do not borrow too much capital proportionally to your equity.
You may find more helpful guidance on applying for finance here.
4. Angel investors
An angel investor is usually a person who wishes to invest their spare assets into a startup – just like yours! An angel investor will usually pour substantial funds into your business. They may also be experienced or have access to resources to help guide you. They may prove to be quite useful as a sounding board for new developments. Further, they may provide networking opportunities like additional investors or other small business owners. For example, Twitter was able to grow to become a billion dollar business with the help of angel investors.
However, for the large investment both financial and relational, you may have to surrender a significant fraction of your business’ control. In particular, they may require high returns which may create an additional pressure.
Angel investors are usually difficult to pin down. Make sure that you have developed a detailed business plan, that you are transparent and that you clearly quantify both your current and projected financial situation. Any past personal or family investment may be helpful to demonstrate both your personal conviction and your ability to repay loans in the past.
Incubators are the talk of the town. What are they? In medicine, they help keep premature babies alive in a protective environment. Apply this to businesses: incubators are programs to foster the development of entrepreneurial businesses aka baby businesses. They usually offer capital, coworking spaces (check out some of the coolest coworking spaces here), networks and guidance. They also give you credibility with respect to any future investors.
Be sure to pick your incubator carefully by looking at the success stories of companies that have used their services. For example, LawPath was established with the help of Pollenizer.
Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-price quote from our network of 600+ expert lawyers or to get answers to your legal questions.