Updated: September 27, 2020
This is the last part of this article, to read the first part, click here: 10 Ways To Raise Capital For Your Business Part 1.
There are many ways to raise capital for your business. So far, five methods have been discussed.
The first three were by using your own money in your savings account, by selling some of the things you own or liquidating your assets and the third was by working for extra income. The last two suggestions that were mentioned were through loans, specifically personal loans, and business loans.
Here now are five more ways you can raise startup funds for your business.
6. Use Credit Cards
Credit cards can easily be used to gain some business capital. Avail a cash advance or make the necessary purchases for your startup venture. If you always pay your credit card bills in full every month, your credit limit could go as high as P250,000 in a couple of years – which is usually high enough to leverage on and start a business with.
A few reminders if you plan to do this method. First is to remember your cut-off date and do your purchases right after so you’ll have more time to save up. The second is to remember your due date. When you become so busy and engaged with your business, you might forget to pay your bills.
And lastly, since you’ll be paying around 3.5% interest per month on your credit balance, your business must generate enough income to cover for the payments and these charges. Again, having a thorough business plan plays an important role in this situation.
7. Check Rediscounting
Lenders that offer check rediscounting are not difficult to find. This method requires you to issue post-dated checks in exchange for its amount in cash minus the interest. For example, at 5% interest, you’ll receive P19,000 if you issue a check worth P20,000. Rates and length of payment dates vary for different lenders.
Although less advantageous than using credit cards, it is still a good option for short-term business cashflow needs and small business capital requirements. Again, make sure that you’ll be able to generate enough money to clear the check on time. It’s also good practice to have backup plans just in case you don’t earn enough money to cover the check amount. You can prepare frozen assets for selling or ask friends if they could help just in case the worst happens.
8. Borrow Money From Family and Friends
Another good option to raise capital for your business is to borrow money from family and friends. One great advantage of doing this is that most of them are usually willing to lend you money without or very little interest. You can also enjoy more flexibility in your payment terms.
Remember though that if you go for this method, you are putting your reputation on the line. So do your best to pay on time and if your business earned more income than expected, give back a little extra as gratitude for their trust.
When talking to them, be straightforward and honest with your intentions. Do it professionally and present to them a business plan. Furthermore, produce a contract stating the agreed terms between you and your friend.
Lastly, be clear that you’re merely borrowing money from them and they will not legally own part of the business. Some people might think that just because they lent you money for the startup, they instantly become investors and can actively participate in the business. Occasional help and a few suggestions can be entertained but draw the line and state that executive decisions will solely come from you.
9. Form A Joint Venture
Instead of borrowing money from family and friends, you can also consider making them a real part of the business. It’s very common nowadays for friends to pool their money and resources to put up a business. There are actually ventures that succeed faster through partnerships. Make a team whose strengths and expertise complement each other. For example, one partner can have good accounting skills, while another is proficient in sales and marketing and one is a legal expert.
Unfortunately, many friendships have also been strained when things go wrong or become difficult. It’s important that from the very start, each one understands the amount of work that needs to be done and is willing to go the extra mile to make the business successful.
Also, be sure to clearly define the responsibilities, boundaries, and jurisdiction of each partner in the business. Lastly, write everything on paper including the options and terms if ever one partner chooses to leave the business.
10. Seek A Venture Capitalist
Venture capitalists are also called angel investors. These are people or companies who are willing to pay for your startup in exchange for part ownership or royalty fees from your business. Guy Kawasaki is an example of such people.
One major advantage of doing this is that you could further tap the VC’s extensive network of partners to help enhance your business. However, do remember that most likely, you’ll lose free rein over running your business because certain decisions will need to be consulted to the VC before they can be implemented.
Looking for a venture capitalist can be quite difficult in the Philippines but they do exist. Always have an elevator pitch ready just in case you bump into one. You can also seek them out in online forums and websites such as the Brain Gain Network (BGN), where Filipino VC’s and technopreneurs are some of the active members.
That’s it! I hope I was able to help and give you an idea of how you can raise capital for your business. If you know any other method, do share them below as a comment.
Lastly, remember that whichever way you choose among these ten, having a good business plan is always an essential tool. It will help you ensure that your business will be able to pay your creditors on time and more importantly, convince investors to join your venture.