Whether you’re a few months into your business opening or have been in the game for a few years, you’re going to need capital when it comes time to expand your operations. Financing is an unavoidable part of life for a business owner, but jumping in blind without asking a few questions may find you in a situation where you’re in over your head.
Things you should consider before raising capital
Before seeking capital for your business there are four specific questions you should ask yourself. These questions will clarify whether or not you should be raising money in the first place, what type of funding you should seek, and much more. Let’s jump in.
1) Why are you seeking capital?
The primary reason to raise capital is to support the growth of your business. Whether that means expanding inventory, hiring more employees, or upgrading to a bigger office, you should always be focusing on expanding your operations.
Clear indicators that your business is gaining traction include increases in website traffic, boosts in newsletter subscriptions or leads, and improved sales. If you have no measurable traction to speak of you’ll have to convince potential angel investors that your team is the best in the world at creating the product or service you’re offering to the market place. Regardless, it’s vital that you understand why you’re seeking capital in the first place.
2) Is it necessary to raise capital?
Consider how necessary it is to raise capital for your business. Are you capable of supporting and expanding your business with the funding you have now? If so there may not be a need to jump deeper into debt just to have extra funds on hand.
With the rise of online businesses, startup costs are at an all-time low. It’s always good to have a surplus to fall back on in times of hardship but ask yourself how necessary it is to raise extra capital before proceeding.
3) What type of funding should you pursue?
Should you open a line of credit? Get a bank loan? Rely on credit cards? Reach out to a venture capitalist? How about alternative forms of funding? You could always get a merchant cash advance, start a GoFundMe, or apply for a microloan. The choices available to you are numerous.
Factors such as credit score and the expediency in which you need the money will all play a direct role in the type of financing you qualify for. For example, if you have prime credit and you don’t have an immediate need for funds than you could always consider getting a traditional bank loan. On the other hand, if your credit isn’t the best and you need cash ASAP then a merchant cash advance may be the better option.
4) How much do you need to raise?
How much capital do you really need? Are you raising $500,000 because you’re trying to compete with your competitors, or are you raising money because you’ve calculated the exact amount you need to grow your business?
Consider exactly how much you need to operate for the next 18 months or so and how much you’ll need to expand. Remember, you can always raise more later on. In the meantime try to stay focused on achieving your milestones.
Raising smart capital
Raising capital without a plan is never recommended. Consider the needs of your business and exactly why you’re raising money in the first place. With a fleshed out plan for your business, you’ll be able to raise capital with confidence.
Do you have a clear vision for your business, but lack the capital to execute it? One Park Financial can provide the assistance you need in finding the right funding options for your business. We work closely with a large network of sources who provide funding options for small business owners. Apply today to get started.