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How to Raise Money for Your Business

By June 11, 2017Seed Bank
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If it’s for your business financing, there are hundreds of ways on how to raise that money or startup capital. The challenge however is that as the amount of money you need tends to increase, the degree of difficulty in raising that money tends to increase as well. Raising money for your business is a combination of strategy, timing, and luck. You can collect the amount of capital you need in no time but in return, you have to deal with the conditions and uncertainties involve in repaying it. So however big or small the amount of money you target to raise, what’s important is that you completely understand how these sources of capital work.

Back in the old days, bank is the primary source of startup capital. If you can’t prove to the bank that you can repay your business loan on time, they have no other option but to reject your application. These days, the presence of various financial and investment institutions completely changes the landscape of business financing.

How to raise money for your business today? Well, there is a plethora of available options and these four are the most common. Here’s how they work.

Angel Investors

Angel investing put emphasis on what partnership can really do to the success of a business. Angel investors are professionals from your family clan, business contacts, or from a pool of unknown investors whom has good intention in backing your business idea. They are entrepreneurs with the capacity to fund your business from $ 500K to $ 1M or could be higher if they’re from the angel groups or angel networks.

Angel investors are often regarded as people-centric investors because they invest more on the people’s ability to make a business successful. So to speak, they are more focus on growth rather than earning big profits. But like venture capitalists, they also seek equity of your business and demand good ROI.

Institutional Venture Capitalists

Venture capitalists or VCs are closely similar to angel investors in terms of the business financing model. The main difference however is that VCs usually have the higher amount of capital to offer. Raising venture capital works through series of seed funding initiated by the VC firms – pool of VCs. VC firms are willing to put more money into your business for as long as they see it innovative and with high potential for growth.

Typically, VC firms will invest from $ 500K up to $ 10M in exchange of 10% to 50% equity in the company. And because their intention is to gain higher returns within 3 to 5 years period, they invest on a business that could make at least $ 25 million revenue in a year. In addition to that, they also provide valuable advisory and share entrepreneurial skills to sharpen the business’ profit-making capability.

Crowdfunding

Beginning in the mid-2000s, crowdfunding and its allied crowdsourcing became very popular in the internet space. Many startups and small businesses with exceptional product and service offerings find this capital raising system simple and effective. Through crowdfunding platforms like Kickstarter and Indiegogo, there is a high potential for entrepreneurs to raise money ranging from $ 1,000 to $ 25,000 or higher from online investors (or the crowd). Crowdfunding leverages the concepts of donation, backing, investing and internet marketing. Through a crowdfunding campaign, you can convince the crowd to donate from as low as $ 10 up to $ 1,000 in exchange of special tokens.

Small Business Loans

There are many forms of loans available for small businesses such as microloan, asset-based loan, private loan, credit card loan, SBA loan, and of course, the traditional bank-term loan. With the assistance of online loan calculators, you can instantly determine the amount, term and interest rate of the loan. The good thing about raising money thru loan application these days is the increasing competition in the money lending sector. Lenders are battling for lower interest rates and flexible repayment period which of course favors the borrowers.

If your target is to raise money ranging from $ 10,000 to $ 1M with interest rates of 2.5% to 7.5%, small business loan can be the right option. Just remember that when securing a loan, you have to present proof of capacity to pay such as credit reports and financial statements.

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