How to raise startup capital

You’ve got your business in your head, now it’s time to find that all-elusive thing called ‘funding’.

By Craig Falck for Africa Report
Photograph: © Bowie15 | Dreamstime.com

If you thought that being an entrepreneur and developing a business service or product was tough, wait until you try to get someone to lend you the money to start it. But have no fear, there are many ways to get finance to fund your startup.

Coming prepared is the first step. Lay out your business plan so that potential investors and finance lenders will have all the relevant information off the bat. This will make it a lot easier for them to decide whether or not to lend you the money, and it makes a good first impression if you show that you’ve thought things through first. Next up, do your research. It’s vital that you identify and research your various financing options. This will allow you to shortlist those that are potential financiers and those that aren’t. We’re talking about financial institutions, money lenders, private equity investors, family and friends, partners and a number of others.

If worst comes to worst, you can even use your own financing, should you have it and be willing to invest in your own business. This could be the best option as you could arrange your own repayment plans, you would technically owe yourself, and you would still be the sole owner or member of the business. Just make sure that you have the necessary finances and don’t overcommit yourself… you never know what could happen in the future. Each method of financing comes with its own risks and opportunities, though.

Lending from financing institutions and banks is difficult. You need to have your ducks in a row and have each and every minute detail covered – these people are going to go through everything with a fine-tooth comb. The first problem that pops up, they’ll hit you with a “denied” stamp. If you have made sure that everything’s perfect, there is a good chance that you’ll get your loan and can start business. Just remember that there are strict repayment terms and conditions that you’ll need to meet from the get-go.

Borrowing financing from friends and family is a lot easier than going to financiers and finance institutions as you know them on a personal basis and they will know what kind of person you are. The problem is that it’s easier for them to change the terms and conditions than other financing institutions, and they will hold it over your head for favours, which you will then feel obliged to meet, especially since they were “so kind to lend you the money in your time of need.” Many a family has been torn apart by money, so tread carefully here. Private equity investors and business partners are among the wisest choices for funding, but they too have pitfalls. While you might be getting the money that you need, you will be selling part of your ownership in the business. This could come back to bite you later on, especially if you sell too much of the business.

Financing your startup is a tricky business and you need to have your eyes open at all times. People are always looking to make a quick buck at the expense of others, so tread carefully and make the choice that’s right for you and your startup.

Source: http://www.inc.com/guides/finance/20797.html