Blog | Entrepreneurship
The Keys to Raising Business Capital
Perhaps you have a small business you want to start or you have an existing business you want to grow. Getting to the next level is going to require some money.
August 25, 2022
Big banks aren’t the only way to raise funds
Back when Robert and I were starting our business, we had a great relationship with our local banker. When we needed a loan, we could get a meeting, sit down, and plead our case. We grew to know each other, and even operate in good faith on some occasions.
Today, you’d be hard pressed to find a banking relationship like that.
So, if you’re looking to get into investing or want to start your own business, the prospect of getting capital can seem a bit overwhelming if you’re only focused on institution-based financing. But don’t let that deter you from your goal, as there’s never been a better time to pursue entrepreneurship — especially if you have the key to success in business: an entrepreneurial spirit.
What are investors looking for?
Women, it can seem especially intimidating or challenging to raise capital, often encountering obstacles our male counterparts do not. So listen up ladies, I’m about to share my not-so-secret formula with you:
Confidence is queen
A 2018 study done by the University of California found that there’s a universal gender gap when it comes to confidence levels—men just naturally display higher levels of self-esteem than the fairer sex. For instance, research by Carnegie Mellon found that when women initiate salary negotiations (which they do four times less frequently than men), they request compensation that is an average of 30% lower. Our society also tends to associate confidence with competence, both of which will win over your potential investors. So don’t back down from negotiations and don’t let yourself be bullied into an unfavorable outcome. Stand your ground and don’t accept anything less than you deserve. If you need some help boosting your confidence, start with educating yourself so that you know your industry inside and out. Then, use body language—eye contact, a confident handshake, and an authoritative posture—to fake it until you make it.
Know your stuff
A Harvard Business Review study found that investors are more inclined to ask male entrepreneurs promotion-related questions (those focused on achievements, hopes, advancement and ideals), while females are more likely to receive prevention-related questions (those focused on responsibility, safety, security and vigilance). This is an interesting insight, which will help you better prepare for those types of interactions. When faced with investor questions, focus your responses on how big and bright the future looks. Talk about growth, your plan to acquire new customers, and how you’ll increase market share.
Show off
Now, it’s time you learn what you bring to the boardroom and how to best showcase that—whether it’s your organizational skills, your expertise in the industry or your relationship-building prowess. Look for patterns in feedback you’ve received from employers, friends and loved ones about the business tasks you do really well. Once you’ve zeroed in on your top traits, you’ll need to get comfortable with articulating them. Meeting with potential investors is your time to shine, not politely withhold how amazing you are. Reminding yourself of why you’re qualified to lead this business will boost your confidence and make it easier to pitch yourself to potential investors.
Raising capital for business
Today, the alternative marketplace-based lending systems (also known as peer-to-peer lending) are a powerhouse industry —and it’s a solution that can fit anyone’s needs. This means that the banking system isn’t the only way to get funding.
Ready to find out how to raise capital? Let’s explore six market leaders that you should be aware of and are worth your consideration if you’re looking for an injection of capital for your next entrepreneurial endeavor.
Here’s how it works:
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Square is known for its suite of POS (point of sale) tools for business owners. If you’re a Square merchant, you can qualify for a quick loan of cash that is as easy as pressing a button in the app.
As they explain: To understand how Square Capital works, here’s an example. Let’s say you accept an offer for $10,000, the breakdown might be as follows:
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Amount Square deposits in your bank account: $10,000
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Total future payment card receivables due to Square: $11,000
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Percentage of daily card sales that go towards receivables payment: 10%
So it’s an automatic repayment model, where your loan is repaid using a percentage of your Square daily card sales. The amount you owe never changes, regardless of how long it takes to pay Square. No late fees, ongoing interest or surprises. To date, they’ve extended over $9 billion in funds to more than 460,000 merchants. The end result? A whopping 95% of those merchants say their businesses grew as a result. If you still need more incentive about this lending system, applying for this loan won’t even affect your credit score.
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Kabbage works like a line of credit. By setting up an account on Kabbage, you can qualify for a line of credit in minutes up to $250,000. You can then draw on that line of credit as needed for various investments. You pay only for what you utilize, and the fee system is pretty straightforward:
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Six-month, 12-month and 18-month terms are available. The six-month terms require a $500 minimum loan.
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Fee rates are 1.25% - 10% of your selected loan amount, which is based on a number of business performance factors.
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Every month, you pay back an equal portion of the loan principal, plus the monthly fee.
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No prepayment penalties, which means you can pay your loan off early and save on those monthly fees.
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Each draw is treated as an agreement between you and Kabbage. Draw against your line as often as once a day. Pay only for what you take; there’s no obligation to take the funds if you qualify.
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OnDeck says its 100 percent committed to small business lending. And they put their money where their mouth is, having delivered over $14 billion in loans to small businesses while maintaining an A+ Rating with the Better Business Bureau.
The company works like traditional banks, offering both standard loans and lines of credit that you apply for online. The difference is that decisions are reached in about 10 minutes and the money is in your account within 24-hours when approved. Isn’t it amazing how quickly lending systems work?
According to their website, they launched OnDeck in 2007 to solve a major issue facing small businesses: Financing. By combining passion for Main Street with cutting-edge technology, they evaluate businesses based on their actual performance, not personal credit. Because of this, they have significantly higher approval rates than if they only reviewed personal credit scores like other traditional lenders.
As a result, entrepreneurs can focus on growing their business instead of seeking financing.
Here's what you can expect:
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The offer term loans from $5,000-$50,000 with rates as low as 11.89% APR. You’ll pay a set amount for a fixed amount of time. The term lengths are 3 to 36 months and, since they report payments to bureaus, your on-time payments will help build your business credit.
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Alternatively, you can choose a line of credit and pay only what you borrow from this flexible plan — between $6,000 and $100,000. The term length is 12 months, and there’s no penalty fee for prepayment. Once you’ve repaid what you borrowed, you have access to your full credit limit again.
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No personal or business collateral is necessary.
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LendingClub is a peer-to-peer lending system, allowing individuals to pool their money to invest in opportunities. So, you can both lend money or apply for a loan. More than $70 billion has been borrowed by over 4 million customers.
Here’s how it works:
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First you’ll apply and get customized loan options in minutes.
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Next, you’ll choose a loan offer by selecting the rate, term and payment options that work best for you.
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That’s it: Money will flow directly into your bank account.
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Also, repayment terms are from 6 months to 5 years and there’s no early pay off fee.
Wondering if you’re eligible? They are looking for 12 or more months in business, at least $50,000 in annual sales, no recent bankruptcies or tax liens, and you must own at least 20% of the business and have at least fair or better personal credit.
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Funding Circle’s website claims it’s the “world’s leading platform for small business lending” and has lent over $18 billion since 2010, to over 120,000 businesses. It’s 100% focused on small businesses, helping them cover upfront costs, tackle emergencies, consolidate business debt and grow their businesses.
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Through their platform you can both get both a small business loan or invest in small businesses.
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You can borrow $25,000 to $500,000 over six months to five years, and decisions are made in as little as 24 hours with money arriving within a day.
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The online application takes about six minutes to complete and you’ll hear from a loan specialist within an hour.
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They have additional options for women-owned businesses and minority-owned businesses, too.
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You’ve probably already heard of this one, but it’s still worth mentioning. Kickstarter is a crowdfunding platform that helps entrepreneurs and inventors launch products — its mission is to “help bring creative projects to life.” Unlike the others on this list, this platform caters more to those who have a great idea but need the money to get started from nothing.
The nature of Kickstarter — having crowds of people fund your project with an all-or-nothing goal — means you have to be well-organized with a thought-out plan for your product and a good marketing angle. But for those who do it right, there’s a lot to be gained.
Since Kickstarter’s launch in 2009, they’ve funded over 225,000 projects, with over $6 billion going towards creative work. Some of these projects have even gone on to win Grammys and Oscars.
Getting started
As with anything, it’s important to do your homework and weigh the pros and cons. It’s also wise to have trusted advisors share their expertise. In this case, you’ll want to consult your lawyer and your accountant to ensure you’re thinking through the process properly, including any long-term ramifications of your decision.
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And as always, you won’t get far if you don’t have a high financial IQ. That’s why financial education is so important. Perhaps it’s time to explore some Rich Dad classes in personal finance, real estate, stocks and entrepreneurship.
Also, it’s a good time for this important reminder: Do not listen to people who aren’t experts in this area themselves. Be forewarned that when you’re ready to take the leap to entrepreneurship, countless “negative Nancys” will likely want to share their uninformed opinions about why you shouldn’t pursue your dream of entrepreneurship — prepare yourself for these awkward conversations by studying up on the worst advice for entrepreneurs.
Original publish date:
August 12, 2015