Raising Capital

Raising Capital

Overview

Capital is the grease that keeps the wheels turning in your business. Whether you need capital for startup costs, short-term operating costs, or long-term strategic development, the day-to-day success of an enterprise often hinges on its ability to attract capital.

The most important element in attracting capital -- one that may keep you from a future cash shortage crisis -- is adequate planning of capital needs through a complete capital business plan. Preparing a realistic projection of the necessary funding will not only force you to consider the wide variety of costs associated with your plans, but also help convince a lender or investor that you understand your business and the relevant market realities.

Business Cycle

Finding startup capital

Debt options for business

Equity options for business

Your position in the business life cycle influences your financing options, how you estimate the amount of money you need, and how you find the money you need.

Start-up Businesses typically face the greatest obstacles to obtaining financing, and thus rely mainly on personal financing, inside (friends, family) financing, angel investors, credit cards and leasing. New ventures needing capital must depend on a well documented and frequently updated plan to give prospective investors a realistic valuation of the feasibility and risks involved.
Acquired Businesses face fewer obstacles than start-ups and might have seller financing as an option. Debt and equity vehicles are typically more available.
Growing Businesses generally have more financing options, such as debt financing. If the business has been profitable, debt financing is generally the preferred form of raising new capital for existing businesses. Growing businesses may also consider raising equity capital through private transfers of ownership interests, by using venture capital firms or by selling ownership interests through formal limited private offerings or initial public offerings.

Finding Capital

Finding startup capital

Writing business plans

Once again, the most important element in attracting capital is adequate planning of capital needs through a complete capital business plan.

The primary financing vehicle for finding capital, other than the owner's savings, are from banks. Through banks, you might obtain: a working capital line of credit; credit cards; short-term and long-term commercial loans; letters of credit; and personal loans. Other ways to raise capital include loans from friends or relatives; factoring (selling your receivables for a discount before they are due); venture capital; and going public (selling stock or debt to the general public).