Most entrepreneurs have a challenge to raising business capital to launch new Businesses. When starting a new Business it is important to have the right sources of Capital. The owner needs to explore the different options to raise funds for the startup. They also need to weigh their options before committing to a particular funding source. In addition Business owners need to conduct comprehensive market research to fully research on the potential targeted consumer base and major competitors in the industry.
Here are a few sources of capital a new business owner can choose from:
Equity Financing is exchange of money for a piece of ownership in a new Business. Equity is usually provided by venture capitalists and angel investors.
An advantage of this kind of funding is that the business owner can pay back the loaned amount throughout a fixed duration of time.
The Business owner can also focus on making their products profitable rather than worrying about paying back to the investors immediately. From a survey carried out last month shows that a number of top Kenyan Small and Medium Enterprises (SME) are jointly owned by local and foreign investors.
The 2011 Top 100 Survey by Business Daily revealed that the share of SMEs respondents have equity funding from foreigners has risen with 31 percent compared to last year.
This shows that mid sized companies are becoming more willing to partner with outside investors which is a positive development for private equity funds targeting the region.
The survey also revealed that only 14 per cent of the participants would make use of private equity, while 3 per cent would have an Initial Public Offering (IPO). This comes months after the Capital Markets Authority sad that they expect at least 25 SME’s to list their shares on the Nairobi Stock Exchange (NSE) by the end of this year.
Also known as ‘Bootstrapping’, Personal Financingis usually a first choicer for most new business owners. Capital may be obtained from personal savings, other investments, pension schemes or credit cards. Some new business owners many choose to use a combination of different sources to raise capital for their businesses.
Friends and Family
Family members and friends can provide more means to raise capital for a new business. Borrowing funds from the family and friends can work for you and against you since some may feel that they should have a say in the running of the business since they have contributed to the new Business.
Debt Financing means getting a loan from financial service providers. Usually these loans are offered by banks and accredited government agencies. From the Top 100 survey, majority of SME participants said that they obtained capital for their Businesses from savings and bank loans. The benefit this means of raising capital is that the Business owner is able to retain maximum control over their Businesses. However a shortcoming of loans is that the high debt owed may discourage other investors and financers from further lending to the Business.
Before you can settle down for the means of capital it is essential to have a comprehensive Business plan. This way you will be able to have organized thoughts and know the financial needs for the new Business and squeeze the advantages of debt financing.
You must have had a nightmare thinking how to raise capital. Being creative with right set of plans is all it takes to raise business capital. If rejected, don’t be disappointed. Re-check your strategies and change it according to time and condition of the market. A quality business plan in your hand can make your investors easy to know your ideas.