Raise business finance
9 ways to raise finance for your business idea
Before you think about funding your business idea, it is vital to get a great deal of feedback on your idea, the last thing you want to do is take out a loan or borrow off your mum and then have to look her in the eye and say ‘sorry it turns out no-one wanted to buy my reusable toilet paper’. Don’t worry about putting your idea up online for getting feedback, it’s very unlikely that no-one has ever had your idea and I always think it’s the individual not the idea that makes the money. Be careful not to be put off though, a lot of people will just list the competition and say they have the market sown up. Ask them how come companies such as Red Bull and Google succeeded if you can’t beat the established competition.
Here a list of methods used to raise money for your business idea.
1) Personal savings
This is the most obvious method but also the best. This way will keep you motivated, as it’s your own hard earned cash. You also you won’t end up with guilt if you do fail as you won’t have affected anyone else. This option however can only get you so far, and a lot of business ideas will require far more than you have. Another drawback is lack of input from the lender, People don’t just lend you money, they have advice and contacts, remember they want you to succeed so they get their investment back. This advice is something you will lack if you go it alone.
2) Friends and family
This method is potentially very disruptive as you are risking the future relationship with friends and family, do you want to risk it? Of all of the methods this is one I would go to last simply because the consequences of getting it wrong are the worst. Going bankrupt would be bad but not as bad as potentially never having the same relationship with family members. However this method is good if your friends and family are fully behind the project believe in it as much as you do rather than just wanting to help you out. The method of course will also not get you into any difficulties later on in life in terms of bank loans.
This is a really modern method but it is growing in popularity. Uploading your idea onto a website like kickstarter.com will enable people to make donations towards it. Say you want to set up your own soft drinks company and you set a target of raising $20,000. People can make donations towards it often in return for some exclusive privileges, like the naming a future product or even a free product itself. You will only will receive your $20,000 however once your target is met. Also if you fail with your business idea you will suffer the consequences of having to pay the money back and explain what went wrong. I only recommend this as a method of funding if you are sure that you can succeed, for instance if you have an order of your product and just need the money to manufacture it.
4) Credit cards
If you require a moderately small short term loan, look no further than getting a credit card. Just make sure you can pay the money back quickly, when repayments are due the interest builds up very quickly and can spiral out of control.
5) Bank loan
This is the most traditional method of raising finance. Going to the bank with a business plan and backing the money you borrow with your house or whatever other assets you own. In a way this is a good indicator on how far your business idea will go, it’s unlikely the bank will lend you money if your business plan is full of holes and it is a no hopper. Whereas if family or a business angel lends you money it is far more likely they will have made a mistake in assessing your idea’s potential than a bank. This is not to say if you get money from a bank you will succeed of course. The downside to this method is risk of bankruptcy which will have a massive effect on your future life, but then again a lot of very famous and successful people have been bankrupt before, they include names such as Walt Disney and H J Heinz.
6) Business partner
Getting a business partner is the first method so far that involves giving away equity. This method is likely to involve two people coming together and offering things the other can’t, in this case finance. The great thing about this idea is you have to give no money back, but you could loose out in the long term as your business becomes more than double the value of their original investment.
7) Business angel
Another method that involves giving away equity, but this will be done beyond the original startup stage as the business angel will want to have seen your history of working with the business. A great thing about this option is not just the cash you will get to spend on the company but also the contacts and knowledge of your investor who hopefully will have worked and succeeded in the industry you are about to go into.
There are lots of grants out there for a variety of industries, your business idea will no doubt have a grant available somewhere. You will find there are more grants for industries that are seen to do ‘good’, such as renewable energy and healthy eating businesses. Just be careful not to set up a business because there is a grant there. This will lead to failure. In fact maybe if there are a lot of grants available you should question why, is it because no one else wants to go into the industry? Now why would that be!
9) Ideas reaction
Of course the most sensible of all of the options would be to spend time on ideas reaction and win our monthly prize fund!
Overall I always recommend going into business with other people but try to maintain a majority share. This way you will get so many more contacts and also if you have different expertise you have a far higher chance of success, just make sure your jobs don’t overlap and everyone knows what their jobs are.
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