Starting a business can be quite strenuous due to lack of or insufficient capital. Ideas are easily available. Many a times, young business people draw up business plans, make their feasibility studies, but then lack the funds to make it fly.
Due to the recent global economic meltdown access to funds have drastically reduced. Start ups hardly go to banks for loans because of the paper work involved and high interest rate. The various micro finance institutions that are supposed to fund SMEs has gone out of the market because of high administrative cost.
Below are some tips for start ups to raise capital for their business.
Personal saving or investment:
Most start-ups companies use their personal funds as capital to start up their companies. The fund might be gotten from saving part of their salary, wages or from their unearned income over a period of time. The total amount gotten from the savings is then used as the initial capital to establish the companies.
Government grant and subsidies
Government established agencies that provide financing to emerging businesses or start-ups as a form of grant or subsidies. Getting grants and subsidies can be tough because of strong criteria and competitions. Before a grant or subsidy can be granted you need to provide the following:
- Business plans
- Feasibility studies
- A detail project description
- Completed application form if required
Bank loans are the most common sources of finance for small and medium sized establishment. They are generally a quick and straightforward way to secure funding needed. Loans can be principal repayment or interest only and can be structured to meet the company’s needs.
Bank loans can be short term or long term depending on the purpose on which the loan was acquired. Cost associated with bank loans are as follows
- Arrangement fees
- Professional advice
- Compliance cost
Investors provide finance for small business or start-ups companies that they believe have long-term growth or prospect. Venture capital are mainly made up of financial institutions, investments banks and private investors.
Venture capital does not only provide fund, it can also provide technical and managerial expertise that will foster the growth of the business.