6 Funding Methods to Think About When Raising Capital

Everyone loves a feel-good story. It’s hard not to smile when you see a video of a Make-a-Wish helping out a child, a story of an athlete who came from nothing, or one of those rags to riches stories like in The Pursuit of Happyness.

Scour the internet for more than 30 seconds and you’re bound to find plenty of stories about how people down in the dumps turned their lives around with a business idea. Or how a young entrepreneur took their hobby and made it into a million dollar business. You can just go ahead and skip the “Business Execs Hate Him! Click Here to Read About How one Man Become the World’s Most Successful Businessman Ever!” clickbait stories.

What you may find lacking in those stories is the amount of hours and hard work being mentioned. It usually comes at a blip in the story, like “Joe Smith worked 17 hour days” or “Katy Lee slept on her friend’s couch for one month”. Many may not realize the amount of work and sacrifice that goes into creating a successful business.

If you’re an entrepreneur, you are definitely aware of the amount of effort your job needs. You’ve sacrificed plenty to get here and there’s plenty more work to be done in order to take it up a notch.

One of the biggest hurdles for all entrepreneurs is funding. You have this great idea but you need cash. How can you expand your business into a new region? How can you market your product on a certain budget?

Below, we’re going to run through some proven funding methods that entrepreneurs can use to help grow their business and take it to the next level.

Alternative Lending

Our first item on the list is a bit of a broader term. It’s to sum up options that you would find outside a bank. It’s also a pretty new form of funding, becoming more and more common in the last decade. This is a way to  get fast business loans without the hassles of traditional funding

Alternative lending is primarily for small or medium sized businesses that failed to qualify for a bank loan. Many alternative lenders can get money to startups in a number of days and in some cases, hours.

You can either go in person or check out a variety of online lenders. Online lenders tend to be the fastest among all, checking all of your documents and giving you an answer within 24 hours. There are also more flexible and have various options.

They don’t come without their flaws, however, as you’re going to have a tough time securing a large amount. You’ll also have to pay back the amount you borrowed more frequently, with some even having daily repayment schedules.

Venture Capitalists

We’ve all heard the term, but may not know the exact definition. Venture capitalists are when an outside groups assumes part ownership in exchange for capital.

Many often turn to venture capitalists when they don’t have any physical collateral. Those who might be in this situation are those involved with e-commerce.

Photo source: https://beeketing.com/blog/future-ecommerce-2019/

Many e-commerce businesses operate as dropships, meaning they don’t ever actually handle the products being delivered but serve as a middle man between the producer and consumer. It’s likely that many small dropship e-commerce companies operate with nothing more than a handful of people on computers.

Venture capitalists will help inject money into the business and others will help provide other resources as well to stimulate growth. Those resources are often more helpful than the money.

Of course, many entrepreneurs may bristle at the idea of giving up even part ownership. It can be hard to let something go that you’ve worked so hard for.

Angel Investors

They used to be in the outfield, but now they’re helping you fund your business. Angel investors are often compared to venture capitalists, but angel investors tend to be a single investor instead of a company or group of people.

Instead of working with a company, you’re likely to be working with one single individual. Consider it to be a more personal direction than with venture capitalist. Once again, it might be hard to give up part of your company in exchange for some capital. Finding an angel investor is also going to be much more difficult than finding a venture capital firm.

Bootstrapping

Bootstrapping is when the business decides to fund itself. Chances are, you’re probably already a bootstrapper and you didn’t even realize it. This could be by gathering personal funds or injecting all your money made back into the business.

Bootstrapping is the “easiest” form of funding your business, because you’re not off looking for investors, venture capitalists, crowdfunding, or loans. No heading to the bank, endless meetings, or filling out tons of paperwork. The business is funding itself. It can be a tough line to walk, as you will still have to try to turn a profit while you’re putting money back into it.

The one downside to bootstrapping is that it’s quite slow. Even with a booming business like e-commerce, you’re not going to be making money hand over fist immediately. Many entrepreneurs use bootstrapping while searching for other areas of funding. Small tricks like finding a keyword rich domain and attracting forum traffic can make a huge impact early on.

Partner

Many entrepreneurs end up taking on a partner or partners when growing their business. Partners can help contribute capital, provide new contacts, take part of the workload, and provide an instant support system. It’s always good to have a foxhole buddy.

Finding a partner may be easy, but choosing the right partner can be tough. You’re going to be spending a lot of time together. Find someone that will not only be a good partner, but someone whom you enjoy being around.

Some entrepreneurs turn to other companies for partnerships, setting up a symbiotic relationship for their products and services.

Partners can provide a number of issues however, as there is always a chance for conflict, shared profits, and shared control. Remember to do your due diligence when looking for a partner. Your close friend might seem like a logical choice, but it’s like finding someone to live with.

Even though you may be best friends, they might be the messiest, loudest person on the face of the earth and drive you crazy.

The Personal Approach

Despite all of these official ways to go about funding your business, it turns out one of the more popular options is borrowing money from a friend or family member. Friends and family might also give you the loan interest free or simply ask for a small share of equity in the business. Every family is different, so how you approach this one is up to you.

If you have a niche product and solid following, you could turn to crowdfunding. There are plenty of stories of successful products that were birthed via crowdfunding. This is a tricky road to go down and is more likely to work with tangible products. But, it’s a 21st century trend that has exploded over the last decade.