A business can be a simple idea to solve an existing problem or explore a possible need. The business cycle starts from conceptualizing an idea to executing it, but you need one main ingredient to make everything work: finance. Finance is the fuel on which the business runs. Just like a car, businesses need a constant source of financial fuel.
But in this dynamic world, things need to move fast and raising capital can accelerate the business process and the cycle. Here is a list of the top avenues for raising capital for your business:
(i) Bootstrapped – People have preached the need for a business to be bootstrapped for the longest time. Hence, some people mostly depend on their savings or investment earnings. Banks are unlikely to extend credit to new businesses, which lack credibility. Therefore, bootstrapping can be the ideal way for businesses that are just getting started.
(ii) Friends and family – Social media teaches personal finance, but our parents have been practising frugality all their lives. The higher education fund or marriage fund that our parents have saved over the years can be used to finance your business. Also, close friends with an idle surplus can be approached for credit at a reasonably lower interest rate.
(iii) Crowdfunding – It is an ideal way to understand whether there is a market for a product that the business intends to offer. In crowdfunding, businesses put out their ideas as products they want to sell and people who are willing to buy such products pay for them in advance as business capital. Crowdfunding is a widely recognized source of funding globally.
(iv) Venture capital – Venture capital firms are always looking to invest in potentially high-growth companies that can multiply their investment. Besides capital, VCs come with expertise in varied areas of business and a diverse network of entrepreneurs, which they offer as guidance and advice to businesses.
(v) Angel investors – These are marquee entrepreneurs and investors who invest a sum for a small stake in businesses. An angel investor becomes the face of the business. Having an angel investor can provide businesses access to other marquee investors and enhance the credibility of the entrepreneur in the business world.
(vi) Incubators and accelerators – Incubators help businesses with disruptive ideas to get off the ground. Whereas accelerators are more focused on the growth and scalability of existing businesses. Along with capital, incubators also provide mentorship and offices to early-stage entrepreneurs. Businesses that are looking to raise capital also have a strong connection with VC and angel investors.
(vi) Bank loan –Financial backing is provided by banks in two ways: working capital loans and funding. These methods can be beneficial; entrepreneurs can assess large capital. Capital provided can fasten income generation process. However, an entrepreneur should only apply for business loan with an appropriate plan for repaying the loan.
The regular flow of capital helps a business bring their product to the market and understand the aspect of product-market fit. However, capital is just a means for businesses to keep moving forward. The focus should always be on the product or service. Finance can act as a fuel, but the engine has to perform.