Similar to the classic Paul Simon song, “50 ways to let your lover go”, There are at least 50 different ways of raising capital. Since I am a writer and not a crooner, I will try to explain five methods that you can raise money.
1. Asset-based financing,
also known as receivable and bank loans, belong to this category. There are a lot of prime and sub-prime lenders that are divided by the size of the loan. Since banks began to retrench following the 2008 financial crisis, numerous asset-based lenders entered the market. It’s not challenging to locate these lenders on the internet. They are reliable because they are usually available for every scenario. There are banks specifically for businesses with clean balance accounts. There are lenders that rely on collateral for businesses that have no longer been able to borrow and are undergoing an overhaul. The costs of collateral-based lenders are generally high. The higher the risk that a lender takes on is, the more they will examine the strength of the balance sheet, and they also examine the condition of collateral. It is essential to have clear financial statements as well as a detailed description of your company in order to begin discussions with the lenders. Out of the five methods to get capital, it is the most straightforward alternative.
2. Mezzanine financing
is an abundance of mezzanine lenders who are looking to lend directly to businesses. Their capital is expensive in comparison to the interest rates of bank loans; however, they are comparatively cheap when compared with the requirements for the return of investors. The criteria isn’t an asset-based one but are rather cash flow-based. They focus on making sure the business is producing sufficient cash flows to repay the principal. Companies that can utilize the funds to earn significant returns are the ideal candidates for mezzanine funding. The majority of companies who receive mezzanine financing are able to double the size of their business by purchasing a different company or speeding up their own expansion. The growth is significant and reduces the cost of financing. In order to work with mezzanine lenders, it is recommended to be able to have a mezzanine finance advisor to assist you.
3. Growth Equity
Raise or Growth Equity is designed to help grow faster. It’s money that will end up being fractional ownership of your business. Growth equity means that you get an investor who is directly involved in board decision-making. Growth equity investors typically provide connections and knowledge to the business as well as their funds. Of the five ways for raising capital, this one requires an enormous amount of effort and requires assistance from an advisor for corporate finance.
4. Crowdfunding
is the most innovative of the five ways of raising money; as with everything online, the option has tremendous potential but also risks. When it comes to crowdfunding, if you’ve got a hot, attractive idea, you could succeed. The success of your crowdfunding campaign is often directly related to how many blue skies you present in your proposal. A majority of businesses with operating histories or are not tech-savvy and boring aren’t likely to gain any traction from crowdfunding. It’s an unpersonal method to raise funds, and it’s difficult to determine who you’re on board from an investor’s point of view.
5. SBA loans
The Small Business Administration has changed its policies with regard to loan size as well as other eligibility criteria. The past was that you needed to meet a certain amount to be eligible for the loan. The banks are more eager than ever to advertise SBA loan options to small businesses. This makes SBA loans one of the five methods to get capital. A lot of banks are in the process of originating these loans in order to syndicate them through the market. There are numerous local SBA origination companies online to get assistance. Some of them can assist you with the qualification requirements. There are loan consolidators to avoid in this, as with all markets. It is essential to do your homework and make contact with trustworthy firms in this sector. If you are eligible to be eligible, you will be eligible for the SBA loan will have at a lower rate.