the profit center is now purpose capital
One of the biggest struggles for entrepreneurs is raising money to fund their startup or grow their business. Access to capital remains an issue for many business owners, so you have to remain flexible and get creative with your efforts. You may have to diversity across a few different resources to optimize your capital structure.
Everyone’s situation will be different, and the ideal funding scenario will vary, therefore I wanted to offer up a few options to consider when looking for capital to fund your startup. Always do your due diligence before committing to having funding to understand the pros and cons.
This is when you fund a project by raising small amounts of money from a large group of donors, most often via the internet. It is a nice tool to use for starting a business because there are already a ton of platforms setup to be able to gather the funds for you once you launch a donor page. One thing to keep in mind with these sites are that you will likely pay a platform fee and there is a payment fee applied to donations. A few crowdfunding sites are:
d. Crowd Supply
You might consider the various debt financing options that are available. Keep in mind that, of course, this financing needs to be repaid, so you are on the hook for the money no matter what happens with your business. Do your due diligence before taking on debt to ensure you are comfortable with the repayment terms and have contingencies in place so you aren’t stuck with large liabilities that drain your business. A few debt financing options to consider are:
a. Small Business Administration (SBA) loan
b. Traditional bank loan
c. Micro loan
d. Credit card – these should be considered short-term and remember the interest rates are incredibly high on credit cards, so I’d use with caution.
e. Individual lender
There are several types of equity investors that can help provide capital to startups. While different from debt because you don’t have to pay this money back, equity investors will get a percentage of ownership and therefore the profits in your business. Often times equity investors will include people who have expertise in your industry or business model and can provide management or growth advice; however, you want to ensure that whoever you partner with is aligned with both your short-term and long-term strategies and goals since they will have an ownership stake and influence. A few types of equity investors include:
a. Angel investors
b. Venture capital
c. Individual donors/strategic partners
Incubator programs are great because while many provide financial support for your start-up, they will also include training, mentorship and access to other resources. Many times they are tailored to specific industries or founders, so you will have the added benefit of meeting and networking with likeminded people. And we all know how important networking is in the start-up game! I encourage you to do some research and find incubator programs you may qualify for based on your business or demographic.
If you are a company that holds inventory, management of your stock is vital for cash generation. Reducing the If you are product based business who doesn’t have the cash to cover production of its products, there are PO financing companies who will cover the cost of production with your supplier. You will then have to pay them back once your customer pays for their order after delivery. This form of financing tends to be expensive so it will certainly eat away at your profit margins, but it is an option if you are cash strapped and don’t have access to other financing.
Don’t overlook the power of asking for support from your family and close circle of friends who might be willing to invest in your dreams without having to offer up equity or pay interest on debt. They can either donate through your crowdfunding page or provide a direct donation.
Sometimes you have to be your own investor. Bootstrapping your venture until you are ready to start raising outside funds is very common and can often help when you are looking for other investors. If they know you’ve already invested a certain amount of your own money into the project, they know you mean business!