If you ask 10 people who are facing challenges of starting or growing their business, chances are that 9 out of 10 of them will mention lack of capital as the primary challenge. Money doesn’t grow on trees, but there are a number of uncommon ways you can get funding for your business; some more traditional than others. These ways of raising money is commonly overlooked by entrepreneurs and business owners. But they are effective and often easier to navigate than the more traditional ways like taking a loan or seeking venture capitalists. I’ll share six of them in this video. Before we get to it, be sure to subscribe to After School TV for more insightful video like this.
1. Apply for Business Grants
Business grants are free money awarded to businesses by governmental and non-government organizations to invest in their business. In addition, the awarding organization often offers mentorship and training programs to help the business maximize capital and to grow. You can win from a few thousand dollars to hundreds of thousands of dollars in grants from these programs. And you don’t have to pay back the money.
Thousands of businesses win grants every year to fund their businesses. Of course like every free thing, there are always a large number of people entering for these grants, which makes it highly competitive. You have to make your application stand out to increase your chance of getting selected. The application process of the grant can offer a learning experience about your business. So even if you don’t get selected, you can take the experience with you.
2. Bootstrap your business
Self funding, also known as bootstrapping is the process of using existing resources to start and grow a business. The founder uses their personal savings, equipments and space to start the company; and reinvest proceeds from the business to grow the company. This approach is in contrast with the trending concept of bringing investors to provide capital or taking on debt to fund a business expansion. It’s about taking and using whatever you have to get the job done.
The advantage is that you maintain complete control of the company without influence from investors and creditors, and managing limited resources can inspire creative ways of getting things done with little. To start a business and build it into a successful company from bootstrapping takes confidence, risk tolerance, and self-discipline. Many successful entrepreneurs like Sam Walton and Steve Jobs, started like this. So instead of waiting for an external source to invest in your business, consider using what you have, get your product to the market, and have customers fund the business.
Provided your business isn’t operating in an industry that requires lots of startup capital, like manufacturing or transportation, you can potentially fund your business —and it may be more feasible than you think. If you believe in your vision for a business and are resolute to make it work, you should be comfortable investing your own money into the business. Investing some of your own money will usually make investors and lenders more willing to partner with you down the line.
This is a form of bootstrapping but it comes with a little twist. Imagine you have a great idea for a product or service. You create a sales copy and marketing campaign to attract attention and have people pay you before you even create the product. Elon Musk used this method to raise huge capital to create a quantity of Tesla’s electric cars. Potential buyers order a Tesla model and wait for months before their order is delivered. Of course, the company had already spent a lot of money developing the prototype and creating buzz around the product. But what he spent on the development was still a fraction of what the company raised from pre-orders.
You can adapt this method by selling your product online. Have people pay for it to be delivered at a feasible date. Local food vendors, handmade products, and service-based businesses can leverage this method to raise money before creating the actual product. Online course creators also use this method to get paid enrollment for the first launch of their training program and then go ahead to create the course when class starts. Selling your products before they launch is an often-overlooked and highly effective way to raise the money needed for financing your business. However, this method will not work for every business model.
4. Enroll for Challenges and Competitions
After applying and winning the IEEE Presidents ‘Change the World Project challenge in 2009, a group of Electrical and Electronics students went ahead to start a renewable energy company. They have since won several other competitions in their industry; some of which had over $100,000 in cash prize plus other incentives.
Competitions and challenges are some of the most overlooked but effective ways to raise free money for businesses and ideas. Some of the largest challenges offer up to a million-dollar cash prize, but there are many that offer from as little as $5,000 to as much as $100,000. In addition to winning cash prizes, you get to gain high-value publicity and potential partnerships to launch your business. If you haven’t considered it, you should give this a try.
Crowd funding is one of the innovations in fundraising that was popularized and simplified by technology. This is how crowdfunding works – An entrepreneur puts up a detailed description of his business on a crowdfunding platform, mention the goals of his business, plans for making a profit, how much funding he needs and for what reasons, etc. and then consumers can read about the business and give money if they like the idea. Those giving money will make online pledges with the promise of pre-buying the product or giving a donation. Anyone can contribute money toward helping a business that they really believe in.
Crowdfunding can help in marketing your product while seeking financing. It can also provide you with market information as to whether there is a demand for the product you are working on. Also, a successful crowdfunding campaign can open you open for bigger funding opportunities.
Keep in mind that crowdfunding is a competitive place to earn funding. So unless your business is absolutely unique and can gain the attention of the average consumers through your pitch, you may not find crowdfunding to work for you in the end.
Another method businesses are starting to adopt is building crowdfunding into their business model. The businesses raise funds on a per-project basis from crowd investors at an agreed interest rate over a defined period of time. The company invests the money in the project and pays the investor with interest at maturity. You’ll find a lot of businesses like this in the Agriculture, real estate and transport industries.
6. Raise capital from friends and family
This may seem like common sense, but a lot of people don’t consider this option of raising capital for their business but it’s often the easiest place to look at. Jason Njoku, founder of IrokoTV raised his first seed capital from a friend who believed in his vision. The company has since raised over 40 million dollars in funding.
When considering raising money from friends and family, it’s best to approach someone with valuable business skills. Narrow down your list to the friend or family who believes in your vision and passion to succeed; someone who understands your plans, and is clear about the risks involved. Create a thoroughly researched and convincing business plan that will aid you to pitch your idea to them.
Make sure to agree on the nature of the funding, it could be a loan or equity investment. If the money is a loan, agree on a repayment plan and make sure to keep to your end of the agreement. If it is equity, make sure to agree on the percentage and terms of their ownership. Don’t overlook these little details out of desperation to get the money. Even with the best of relationships, things can easily get out of hand. It’s easier to deal with problems arising in the future when you have proper documentation of agreements.
As you can see, there are different methods of raising capital for your business. Pick the methods that resonate with you. It doesn’t have to feel comfortable; get out there is start taking advantage of them. If you found this video helpful, like and share it with someone. If you are yet to subscribe to After School TV, now is a good time to hit the subscribe button. Until next time, YOUR SUCCESS MATTERS!