Money makes the world go round, and as an entrepreneur or business owner, money takes on a crucial quality beyond just the everyday. It seems like no matter how much you have, it’s never enough (especially in the early days of a new venture). You always need (or feel like you need) more.
So, how can you increase your capital? Well, for starters, let’s define the different types of capital out there.
There’s social capital, which refers to your network of associates, and its intrinsic value. You should always be working to expand your personal and professional networks. You never know when someone you know will end up being a life (or business) saver in some capacity. Get out and meet people. Network. Social events in your community. Follow up with people you do meet to maintain and cultivate the relationship.
Then there’s human capital. That’s your earning potential over the course of your career(s). It’s always highest on the first day of your working life (the most time stretched out in front of you). You can increase your human capital by either working more (years, hours, etc.) or charging more for the time you do work. To do that, you need the desired skills...learn new skills specific to your industry, new languages, computer and programming skills, organization skills, and so forth. Strive to always learn and improve.
Finally, of course, there’s financial capital. Money, Cash. Income. Moolah. This is the aforementioned necessary evil that makes the world go round. As an entrepreneur, how can you increase it when you need it (or, ideally, BEFORE you need it)?
Increasing Your Capital
There are a number of ways to increase and generate capital for your business venture. Most deal with finding investors or ready cash in some way, but you could also look at expanding your product catalogue, or distribution area (although both would require a cash influx, so you’re back at the investors route). As with everything in life, there are pros and cons for each, so do your homework and consider your options. Don’t jump into one without due diligence.
Investing in Yourself
Depending on the required amount, this might not be a viable option, but your first choice should always be investing your own money in your idea. It’s your baby. As the saying goes...put your money where your mouth is. If you really believe in what you are doing, and you can swing it, this should be your first route. You retain full ownership, and you reap the benefits of your hard work. Sadly, as expenses and required capital goes up, many entrepreneurs just can’t afford to go it alone and have to look at outside sources.
This is essentially a business deal between you and someone (or a group, or a firm) else. They agree to provide capital (i.e. money) in exchange for shares or partial control in the company. You’re most likely dealing with either venture capitalists or angel investors for this. On the plus side, the agreement indicates a healthy payback period, stretching the investment out over time. Be sure and include a “buy back” option if possible, which allows you to regain control of their stock once you can pay them back their investment (plus a healthy interest amount). The downside, of course, is that you have to relinquish at least a little ownership and control of your business.
Family and Friends
Some may consider this a better choice, at least initially, then going with a venture capitalist or angel investor. Friends and family know you, and will likely be prepared to invest in you with less convincing than a stranger. They may or may not want partial ownership, and they may or may not require interest on the loan. Those are all definite pluses. That said, there’s no quicker way to lose a friend or alienate a family member than borrowing money or going into business together. Sure, it works out sometimes, but it could just as easily become a source of friction and tension between you. Tread very carefully.
If you have a solid credit rating and a good relationship with your bank, you could consider getting a business loan. Going into debt, while never ideal, is sometimes the lesser evil when you need to increase your capital quickly, and the bank is not going to require shares, stock or ownership (although it might take something as collateral). A bank loan is relatively easy to procure, and the interest rates for a small business are generally decent. It’s worth a look.
Government Loan or Grant
This is really just another type of debt financing. Many governments (municipal, provincial/state, and/or federal) often provide very low interest rate loans to entrepreneurs in order to stimulate the economy. You might even be able to get a grant, which means you don’t have to pay it back. Google your options.
Last but not least, as it has proven very effective, is crowdfunding. Go 4 Funding or Kickstarter (and many others) connect you with thousands of people looking to help out. Each person can invest a set amount (from a few dollars, to a few thousand, or more). You raise money by sheer volume of investors. Each tier that you create comes with some sort of incentive. Crowdfunding has been used recently for everything from Hollywood movies to innovative products and services.
No matter what route you go, be sure and have a clear idea of how much you need, and why. Be ready to explain the details. Have a business plan. Be clear about repayment, and what (if anything) someone gets for their investment in you and your company. If the idea of giving up any ownership or control is horrific, your options are limited, but not zero. Check them all out and go with your gut. For more information, check out Raise Capital.
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