When it comes to starting a business, getting the amount of money needed to make the first investments is the first barrier most entrepreneurs have to face. You likely think that using your own money is best, but that is not always the case (I will explain why later) and sadly, not everyone has enough money to start the business they want. In this article we are going to give you some fundraising options that you may have forgotten or maybe you just ignore.
When it comes to raising money, there are basically three options.
1. Using your own money
2. Ask for a loan
3. Look for investors
Number one is the easiest when it is possible, and most entrepreneurs would agree that is the best option, however, that’s not always true. In finance there is something called leverage, which I will explain with an example:
Normally, if you have 100 units and you need 100 units to start a business or do an investment, you can just use your 100 units and everything will be perfect.
But, leverage consists of making use of your debt capability due to your current 100 units of cash. Asking for a loan of, for instance, another 100 units. With the loan, instead of starting a business with 100 units, you will be able to start one with 200 units, or two different businesses with 100 units each. In the end what you are doing is investing 200, having only 100. So if in the first example you get 10% of your investment, you will get 110 in the end. In the second one, if proportions are the same, you will have 220 units, from which you will need to repay the loan -100 and the interest, ideally less than the profits (10%), let’s say 5%. So in the end you will get 115%, which means an increase in profit of 50%. Of course, leverage means higher risks, but depending on the situation, the profits and interest that the investment will generate, the best option may not be number 1.
Number two, asking for a loan, is the most common option among entrepreneurs who don’t have enough of their own money to invest in a new business.
If you are going to ask for a loan, it is essential that you create a very good business plan. Moneylenders like good business because they know that they will generate the cash that will enable you to return the money and the interest. So, don’t be afraid to show your future business strengths to them, your financial forecasts, and how you have thought out everything to return the money.
When looking for a loan, people usually just go to their bank, but this is a mistake. In business, information is money, so you will need to invest a significant amount of time checking loan offers from other credit institutions. Of course, take a special look at the interest rate, as well as to the conditions you want, such as if you need a guarantee, if you need to buy additional services (some banks ask for that), etc.
One of the first places where you have to research is public funds for starting business. They usually have very good conditions, with lower interest rates. The bad news is that they usually are focused in some specific business niches, related to technology or strategic sectors for governments or are for people in weak social conditions, so not everyone can ask for them.
Lastly, take a look to the new services the Internet has brought to us. Now it is possible to get a loan from particular moneylenders through crowdfunding loan platforms. Take a look at what they have to offer! Actually this links with our number three option:
Look for investors. Traditionally, looking for investors was based on personal relationships and acquaintances. But now it is very different. As there are crowdfunding loan platforms, also there are crowdfunding investment platforms, where particular investors look for business opportunities to invest in, in exchange for some business shares that will generate interests in the future.
In business, information is a key success factor. This holds true when fundraising for your e-commerce business. Try to think differently and you may find a new way to get the money you need.