How To Raise Capital For a New Business
Starting a new business is expensive, and seeking financing can sometimes be challenging. In some cases, the difficulty is personal: if you have a limited business history, poor credit score, or other mitigating factors, banks may be hesitant about lending to you. In other cases, an idea might seem impractical or too costly for a bank to take a risk.
This said, there are many ways to raise capital for a new business, encompassing both traditional and non-traditional routes. The tips below suggest some plausible avenues for securing funding for a new company.
Bank or Credit Union Term Loans
Many new entrepreneurs will rightfully start by inquiring about loans from a bank or credit union. In many cases, this can be a great way to raise funds. If you are approved for a loan, commercial term loans from banks are frequently affordable, and can sometimes be secured in high amounts. Paperwork may take some time, though, so be prepared to wait for your funds.
A common alternative to a traditional bank loan is an SBA loan. While these are lent through private financial institutions, they are partially backed by the Small Business Administration, meaning some financial institutions will be more comfortable taking risks. SBA loans do require a lot of paperwork, but they can be a great option for new business owners. Better yet, there are multiple options for SBA loans, allowing you to apply to one that is properly tailored to your needs.
Crowdfunding has grown in popularity in recent years, often as a way to raise capital for new businesses (or other expenses). In some cases, crowdfunding can be a great way to go — particularly if you have the public profile or social media reach to reliably court a large number of prospective funders. For some businesses, though, the social dimension of crowdfunding will be challenging.
Venture capital can be another useful way to raise funds. Venture capitalists will typically invest in a startup — and often heavily — in exchange for some level of ownership equity in the business. While it can be a great way to raise money without going into substantial debt, it does require giving up some ownership control over your new business — which does not work for everyone.
These are only a few ways to raise money for a new business. Exploring these options, along with others, may help you determine a financing path that makes sense for you.