How to raise capital in business



Everyone who owns even one share of stocks in the company is an owner and share in the profit or loss and growth of the business according to the proportion of stock they own. To raise the amount of funds needed the company must receive the approval from the appropriate regulatory authority to issue the stock. Large, well- established companies have the option of borrowing through debt instruments such as bonds and debentures.
 

Launching a new business requires much skill and preparation. Entrepreneurs may not have the resources to raise capital in order to market their new business ideas; therefore, some great business ideas never become commercialized. This is a common dilemma that many entrepreneurs face. They often speculate about how to raise capital and same time, are unsure about how their startup will have the needed financial security to properly stay on track. Before a new business owner can raise capital for their startup, they must first identify the different sources of funding, find one that is most compatible with their needs, and then meet the given criteria of the investor or bank. These crucial steps can mean the difference between having the opportunity to successfully raise capital and leaving their new business ideas behind.



Research- Entrepreneurs are encouraged to first investigate their funding options and conduct comprehensive market research to fully understand their potential targeted consumer base and any major competitors. Such information can be readily available both online and offline.

Online Resources


The internet has become the fastest and most efficient means by which a new business owner can perform market research and find out ways to raise capital. One important website to visit is the Small Business Administration (SBA) (www.SBA.gov), which can provide the necessary facts and resources needed for starting their new business. Every entrepreneur should take advantage of this valuable online resource so that they can become aware of all the different types of funding available. They will also be able to learn about how to meet the desired criteria in order to effectively raise capital for their new business.

Offline Resources


In addition to online resources, new business owners can also visit the public library or read through the local newspaper to find out more information on how to raise capital. The prospective business owner can also speak to successful entrepreneurs who have experience in the field. Since experienced entrepreneurs have been through this process already, they can provide a wealth of information to the new business owner. The entrepreneur can also build a network of contacts through them, receive constructive advice, and find out how they can raise capital for their new business. Every entrepreneur can greatly benefit from an experienced business owner’s wisdom, further giving them a leading advantage to raise capital.

Sources of Capital


There are different types of financing that will enable an entrepreneur to raise capital for their new business:
 
Personal funding
 
Using personal finances or “bootstrapping” is one of the first sources that an entrepreneur may consider using when they decide to raise capital for their new business. Money can be obtained from personal checking and savings accounts, credit cards, and retirement accounts. In addition, equity can be collected from the sale of real estate properties, vehicles, recreational equipment, and even rare collectables. In fact, some wealthy entrepreneurs can choose to raise capital for their new business using their own personal funding. On the other hand, many new business owners may opt to utilize a combination of different sources to raise capital.

Issuing Bonds
 
A bond is a written promise to pay back a specific amount of money at a certain date or dates in the future. In the interim, bondholders receive interest payments at fixed rates on specified dates. Holders can sell bonds to someone else before they are due.
Corporations benefit by issuing bonds because the interest rates they must pay investors are generally lower than rates for most other types of borrowing and because interest paid on bonds is considered to be a tax-deductible business expense. However, corporations must make interest payments even when they are not showing profits. If investors doubt a company's ability to meet its interest obligations, they either will refuse to buy its bonds or will demand a higher rate of interest to compensate them for their increased risk. For this reason, smaller corporations can seldom raise much capital by issuing bonds

Equity financing

This is a type of financing is essentially an exchange of money for a piece of ownership in a new business. This type of financing can usually be provided by venture capitalists and angel investors.
An advantage of using equity financing as a way to raise capital is that the new business owner can pay back the loaned amount throughout a fixed duration of time. In addition, the new business owner can focus on making their product(s) profitable rather than worrying about paying back the investors immediately.
One possible disadvantage of utilizing equity financing to raise capital is that the new business owner may lose partial or complete autonomy over their new business. Often times, angel investors or venture capitalists may want to have a large share in their invested company as well as have a say in every business decision made, including routine ones. A new business owner needs to explore the different options to raise capital as well as consider each of its benefits and disadvantages before deciding on what suits their new business the best.

Issuing Preferred Stock

A company may choose to issue new "preferred" stock to raise capital. Buyers of these shares have special status in the event the underlying company encounters financial trouble. If profits are limited, preferred-stock owners will be paid their dividends after bondholders receive their guaranteed interest payments but before any common stock dividends are paid.

Selling Common Stock


If a company is in good financial health, it can raise capital by issuing common stock. Typically, investment banks help companies issue stock, agreeing to buy any new shares issued at a set price if the public refuses to buy the stock at a certain minimum price. Although common shareholders have the exclusive right to elect a corporation's board of directors, they rank behind holders of bonds and preferred stock when it comes to sharing profits.
Investors are attracted to stocks in two ways. Some companies pay large dividends, offering investors a steady income. But others pay little or no dividends, hoping instead to attract shareholders by improving corporate profitability -- and hence, the value of the shares themselves. In general, the value of shares increases as investors come to expect corporate earnings to rise. Companies whose stock prices rise substantially often "split" the shares, paying each holder, say, one additional share for each share held. This does not raise any capital for the corporation, but it makes it easier for stockholders to sell shares on the open market. In a two-for-one split, for instance, the stock's price is initially cut in half, attracting investors.

Angel investors

Using personal finances or “bootstrapping” is one of the first sources that an entrepreneur may consider using when they decide to raise capital for their new business. Money can be obtained from personal checking and savings accounts, credit cards, and retirement accounts. In addition, equity can be collected from the sale of real estate properties, vehicles, recreational equipment, and even rare collectables. In fact, some wealthy entrepreneurs can choose to raise capital for their new business using their own personal funding. On the other hand, many new business owners may opt to utilize a combination of different sources to raise capital

Using profits

As noted, companies also can finance their operations by retaining their earnings. Strategies concerning retained earnings vary. Some corporations, especially electric, gas, and other utilities, pay out most of their profits as dividends to their stockholders. Others distribute, say, 50 percent of earnings to shareholders in dividends, keeping the rest to pay for operations and expansion. Still other corporations, often the smaller ones, prefer to reinvest most or all of their net income in research and expansion, hoping to reward investors by rapidly increasing the value of their shares.

Debt financing

New business owners can also raise capital through debt financing. In its simplest terms, “debt financing” means a loan. Usually, this form of capital for a new business is offered by banks and accredited government agencies, such as the Small Business Administration.
When new business owners use debt financing as a means to raise capital, he/she will owe money to the lending agency, which is usually a bank. The strong relationship between the new business owner and the financial institution continues for the life of the loan and ends once the new business owner pays back the entire amount.
An advantage of debt financing as a way to raise capital is that the entrepreneur is able to retain maximum control over their new business. In addition, interest on debt financing is often tax deductible. However, one disadvantage of debt financing is that the high debt may look unattractive to other investors who are also involved in the project. This money owed may discourage other financiers from lending further funding and can often disqualify a new business owner from the opportunity to raise capital in the future. 
 
Secured loans

If the new business owner decides to apply for a secured loan, they will need to find collateral in order to raise capital for their new business. Personal, commercial or residential properties, invoices, or even recreational equipments can be considered deposits to secure the loan. Secured loans are a popular alternative for entrepreneurs to raise capital for their new businesses.
 
Unsecured loans
 
If the new business owner does not want to use collateral as a form of security to raise capital for their new business, they have the option to apply for an unsecured loan. Even though unsecured loans are not as large in amount as secured loans, this may be more compatible with the new business owner’s needs. An unsecured loan is also a popular option to raise capital for a new business.
In both types of business loans, entrepreneurs are able to raise capital for their new business based on their credit rating. 

The importance of a business plan


In order to effectively raise capital, every new business idea with marketable potential should always be accompanied by a well-constructed, comprehensive business plan. To create such an extraordinary business plan, new business owners must first organize their thoughts, and then create a documented first draft. New business owners are also encouraged to seek the assistance in proof-reading in order to avoid any errors, which can seriously damage their overall credibility and chance to raise capital. A well-written business plan is the key for new business owners to successfully raise capital.
Many successful entrepreneurs strongly believe that preparing a business plan is similar to writing a resume. The new business owner has to focus on every detail, explain their academic background and credentials, and clarify how their experience could add value to the new business endeavor. In addition to providing several references, the business plan should be constructed in such a way that it leaves potential investors speechless, with no further questions asked. By creating a well-prepared, solid business plan, new business owners will greatly increase their chance to raise capital for their new business endeavor. In addition, their solid business plan will also improve their chance to raise capital throughout the development of their new business.
To further increase one’s chance to raise capital, new business owners are encouraged to seek the help of professional legal consultants or accountants. These professionals serve as a valuable resource to new business owners who want to raise capital since they can provide new business owners with all of the necessary paperwork for their business plan. They can even develop the entire business plan for the new business owner. But before seeking their help, the new business owner must make sure that these professionals are accredited and that they have experience in the field of new business startups. The assistance of accredited, experienced professionals when preparing a business plan will definitely impress investors, increasing the entrepreneur’s chance to effectively raise capital.
 
Conclusion


There are many different funding options available to new business owners who are seeking to raise capital. However, before they resume their funding quest, new business owners should identify the different sources of capital and are encouraged to diligently work on meeting the required criteria. This includes ample industry research, the creation of an effective business plan, and credit report maintenance and repairs.
While personal savings and money from family and friends can be readily available, it may not be enough to raise capital. Instead, new business owners can raise capital from financial institutions, government grants, and even from angel investors and venture capitalists. A fast means by which new business owners can effectively raise capital is through online networks such as Go4Funding.com. As a member, new business owners can increase their chance to raise capital by posting their capital necessities online where it will be viewable by accredited investors from around the world. Many new and existing business owners have used Go4Funding.com as the main source to raise capital for their businesses while investors depend on Go4Funding.com for investment opportunities. If you are a new business owner who is seeking to raise capital or if you are an investor who is interested in different business prospects, visit Go4Funding.com and become a registered member today. The opportunities are endless.
Copyright © STUDY FOR BUSINESS - Blogger Theme by Logics IT & Technology