It is one thing to identify great business opportunities and it is quite another to develop great ideas that could bring your entrepreneurial vision to fruition, but you definitely won’t go very far without the requisite or adequate business capital. And this is where many budding entrepreneurs get stuck: they are unable to raise the necessary capital needed to finance their business to maturity.
Your new business must be nourished like a baby to maturity
It should be noted that every new business is like a new baby. It continues to cry for food/money until it is weaned and grows into maturity. Your identified business opportunity is the newly fused zygote in the womb of time. Your forming business idea is the growing foetus developing into a new child. And the newly established business is the newly delivered baby.
It must be constantly fed to be strong and to be able to resist infanthood infections which are emerging challenges in this instant, until the baby is weaned to become a fine child fast become a teen. If your business child is not properly fed, then it becomes stunted and its growth is arrested, something that could make the child to suffer malnourishment and eventually die.
How to raise capital for your business
The best and surest way to raise capital for your new business is by using your personal savings. Your bank savings or nest egg is the best way to source funding for your business, since you only need to walk into the banking hall to access the money and you do not have to pay back to anyone anytime soon.
The next best way is to pool monetary resources together if you are forming a partnership with others, requiring each partner in the new business to contribute amounts needed to nourish and run the business. Each partner could contribute their savings or contribute other assets that the business would require to operate seamlessly.
It is also quite good for an entrepreneur to access bank or cooperative loans where possible, but this should be as a last resort to avoid the pressure of paying back. Do not forget that with loans, you have to pay back within a given deadline and with the accumulated interest. The only advantage here is that a loan can be larger than what you personally can save. There are about seven types of loans –
- Short-term loans are given with the understanding that it would be paid back with interest within six months. The amount given as short-term loan is not much but okay to start a basic business.
- Medium-term loans are given to be paid back within 1-2 years. These are mostly given by microfinance banks or some other lending institutions. The loan is slightly higher than that of short-term loan.
- Long-term loans are repaid between 2-5 or more years. This is usually a huge amount of money that could take your business out of financial doldrums. But care should be taken to use the loan for the exact purpose for which it is taken.
- Overdraft is given by commercial banks. This is where the bank allows you to withdraw more than you savings. Say, the bank allows you to withdraw up to $2,000 where you have only $800 saved in your account. You will have to repay the difference over some given months. Overdraft must be applied for and approved before it is given.
- A syndicated loan could be granted to you by a group of loaning banks. This is usually used to finance larger companies and multinational businesses. A group of three or four banks come together to jointly finance your project and you get to pay back within 10-25 years or according to some other given time.
- Cooperative and credit societies also provide members with loans that must be repaid over a period of time. Such a member must have some deposit already contributed to the cooperative scheme, with more than his deposit given as loans when he applies for it. This works exactly like a bank overdraft.
- Other forms of loans are not in terms of money, but rather given as support or in equipment and needed assets. There is an understanding between the seller to offer you equipment leasing which would be paid for over a period of years. This equipment or other assets could be used to operate your business until it starts to generate enough revenues for repayment.