How to raise money to start a business
Starting a business often requires access to capital, but there are many different funding options available depending on your stage of growth, financial situation, and long-term goals. From self-funding and loans to investors and government-backed programs, understanding the available sources of financing can help you choose the approach that best supports your business’s success.
1. Crowdfunding
If you have strong convictions about an idea, use the power of the internet to raise the funds you need. Crowdfunding sites like GoFundMe have become increasingly popular with inventors, entrepreneurs, and the general public in recent years. They’re easy to set up, and if you can communicate your passion in your fundraiser description, you may be able to generate support from people all over the world.
Moreover, you can ask friends and family to contribute to your crowdfunding efforts or borrow from them directly. People you know are often the best and safest way to raise money. Not only will they be more open to your proposal, but they have also likely seen your effort and dedication.
2. Angel investors
Angel investors provide capital for a business startup in exchange for convertible debt or ownership equity. Many of the most successful companies today, including Airbnb, Uber, and WhatsApp, received early backing from angel investors. Looking for a way to raise money for a business that already shows signs of growth? Angel investors are a favourable option.
3. Bootstrapping
If you don’t want to give up any form of ownership or independence, bootstrapping is likely the best option to raise money for a business. It involves using your own resources. This may mean pulling from your savings or taking out a mortgage on your assets.
4. Venture capitalists
Like angel investors, venture capitalists provide capital to startups, early-stage, and emerging companies that show high growth potential. The difference is that venture capitalists typically take an equity stake in the company in exchange for their investment. However, some may also provide financing through other investment structures.
5. Microloans
There are numerous microloan options for those looking for ways to raise money for business growth or expansion. Loans remain a core option for businesses because they usually come with fewer strings attached, shorter payment periods, and in some cases, medium to low-interest rates.
6. Business Development Bank of Canada (BDC) and government programs
The Business Development Bank of Canada (BDC), Canada’s only bank dedicated exclusively to entrepreneurs, offers startup loans, working capital financing, and flexible repayment terms designed to help small businesses grow. Entrepreneurs can also explore the Canada Small Business Financing Program (CSBFP), a federal initiative that helps small businesses secure loans from private-sector lenders with government backing, covering up to $1,000,000 in eligible costs.
How to raise funds for a business that is growing
If you’re looking for how to raise money for business growth, explore the following options:
7. Purchase order financing
Purchase order financing is perfect for businesses that have large product orders coming in regularly but not enough cash to cover the production of products until the payment from the customer comes through. How it works is that a purchase order financing company will pay your supplier the cost to produce the product. When the product is made and shipped to your customer, your business then invoices the customer and receives payment. That payment is then used to pay back the purchase order financing company. While it’s not the most affordable way for a business to borrow money, it is a viable option for those who aren’t able to qualify for cheaper financing to fulfill an order.
8. Contests
Business contests are a great way to get funding because the prize money comes with very few conditions, if any at all. Contests usually encourage creative businesses or social enterprises to take part.
9. Product pre-sales
Borrow a page from big names in tech and offer customers the option to pre-order products before they launch or hit the shelves. Not only does this raise the money needed to fulfill these orders, but it also offers companies a way to gauge the demand for their product.
10. Strategic partners
Strategic partners come in many forms, from suppliers to distributors, and even customers. While it may not be direct funding, getting credit from your supply chain can help supplement your budget until your business is in a good place financially.
11. Incubator programs
Business incubators are programs created to provide new businesses access to the resources they require to grow. Incubators benefit businesses more than just financially. They also offer mentorship, network establishment, and relevant entrepreneurship training.
Best practices for raising money for a business
Securing funding for a business involves more than identifying potential sources of capital. It also requires careful preparation, strong organisation, and clear communication. By following a few best practices, entrepreneurs can strengthen their credibility, build investor confidence, and improve their chances of obtaining the financing they need.
Always practice due diligence
No matter what form of fundraising you do, always make sure you practice due diligence to make sure you are not getting the raw end of the deal. This is especially so with financing, venture capitalists, or angel investors.
Ensure that bookkeeping is organized
Always make sure to do proper bookkeeping, whether you’re a small business or bootstrapping. The first thing financial lenders or investors look at is whether a company’s books are in order.
Fine-tune your business pitch
Refine your value proposition in your business pitch. Investors want to know your impact, and how their money will help you achieve it. Make sure to showcase the things that make your business unique.
Use creativity for fundraising
Get creative with your fundraising efforts. Like in a business deal negotiation, it’s about much more than simply asking for a cheque. Likewise, think outside of the box when exploring funding options.
Share your enthusiasm
Express your passion and get your audience excited, especially when crowdfunding.
Raise more money with GoFundMe
Grants and loans can take from weeks to months to be approved. With crowdfunding, you can start raising funds for your small business right away. Crowdfunding can also complement traditional financing by helping bridge funding gaps while a loan application is under review or when a grant covers only part of your costs. It can also be a useful way to gauge interest in your product, service, or business idea before pursuing larger funding sources. Are you ready to raise funds for your business? Start a fundraiser today.