Looking for ways to increase cash reserves for your business? Great! Then don't miss these 9 actionable tips for getting growth capital.
If you're struggling to get funding for your business, you should learn that there are multiple means of sourcing growth capital.
The best part is that the strategies outlined here can apply to small or large businesses. Plus, the processes for acquiring funding may be less tedious than you think.
Read on and consider these 9 ways to access growth capital; by the end, you should have more ideas for how to fund your business.
Table of Contents:
- Business Credit
- Government Contracts And Grants
- Crowdfunding
- Friends And Family
- Venture Capital
- Angel Investors
- Bank/Credit Union Business Loans
- Bootstrapping
- Public Equity (IPO)
- A Business Funding Wrap-Up
1. Business Credit
Today's business credit cards come with various perks and generous spending incentives – but using credit cards effectively as growth capital can be tricky. You don’t want to get buried in loan interest and fees!
The best cards to look for when you want to fund a business are those with low interest rates and excellent benefits (for example, travel miles, no annual fees, or a good deal on points).
With the right personal and business qualifications and a good credit rating, you can apply for multiple credit cards to help you cover monthly expenses (make sure you're tracking spending!)
Business credit brings the best ROI when you use it for areas of the business that make you money. A good example is investing in marketing to generate more revenue or adding sales staff.
Credit cards come with an application process, and some have stricter requirements than others. But with credit obtained, you can be more agile with expenses and keep more cash in reserve.
2. Government Contracts And Grants
Government contracts are executed when the government hires qualified businesses to provide products or services. State and local governments as well as the federal government provide many services for their citizens by awarding government contracts to private companies to do the work.
The process typically involves sending proposals, and waiting to have your bid evaluated and approved.
Government support doesn't just end there, though — grants are another helpful way of generating capital, with some having "hiring" benefits built into them. In other words, if you need more staff to fulfill the deliverables required by an RFP, you can build the cost of the additional people into the contract. (In fact, some grants help employers hire people from populations with employment barriers.) This approach can offer your company some growth capital in the form of funding essential hires.
A great starting point for finding and researching government grants is Grants.gov on the federal level, Maryland Business Express for State contracts, and the eMaryland Marketplace Advantage for County and local contracts. Maryland also has a number of other funding opportunities for businesses in the state.
3. Crowdfunding
Crowdfunding is a way of raising money by enrolling groups of people – individual investors and small investor groups – in helping finance your business operations.
You can execute crowdfunding in numerous ways, formal or informal; including using a crowdfunding platform to reach a broader audience than your personal network.
Some companies offer funders company equity or other tangible value for their contributions.
Here are some ways to crowdfund online:
- Use an established crowdfunding platform
- Email marketing to a list of your contacts
- Create a private Facebook group
- Video content marketing
Keep in mind that crowdfunding doesn't have to be entirely online.
In fact?
One of the best places to start is your backyard – your community!
(Community funding is now recognized by the SEC as a legitimate investment vehicle.)
Here's are offline approaches you can do within your immediate community:
- Post signs (where allowed)
- Canvassing: go door-to-door
- Direct mail
- Direct phone calls
- Neighborhood organization events
- Networking, and telling everyone within two feet of you what you’re up to!
When crowdfunding, your job is to educate potential contributors on what your business plans to accomplish (ex., what their money is contributing to).
Also, if you're in the planning stages of your business, consider starting your crowdfunding campaign months in advance.
4. Friends And Family
Friends and family are often the perfect support networks for your business venture.
For that reason, they're often the best place to start when looking to raise capital.
As with any other kind of crowdfunding, you must describe for friends and loved ones the goals of your business, the contribution that it makes for people, and how you plan to use their money.
Here are some questions you can ask yourself in this process:
- What value proposition can I share about business?
- How will my business benefit my friends and family?
- How many clients do I already have on the books?
- When do I forecast that my company will make a profit?
Those closest to you can also be the best source for loans, if you have a good reputation; and they may offer you lower interest rates than banks or other strangers. With this route, it's best to keep things professional: make sure all financial agreements are made in writing to reduce the chance for future misunderstandings.
5. Venture Capital
Venture capitalists (VCs) are people or firms that fund and invest in a business in order to see a return on investment – and they usually seek a great return.
VCs typically invest in companies with strong financial foundations, proven product-market fit, and sound growth strategies.
Most VCs can be enticed to take a look at a company with exponential growth or a clear upward trajectory.
If this is you, getting a meeting with a VC or a VC firm becomes easy, especially with a sound pitching strategy.
6. Angel Investors
Angel investors are similar to VCs — only they typically invest in early-stage companies (a riskier proposition), linking their returns to equity in the company as it grows. This is known as "convertible debt" (i.e. the debt will be converted to shares in the company at some future date).
Another key difference is that angel investors focus on companies that have the potential to go public (i.e., enter the stock market) or be sold to a bigger company in the future.
This is because their equity share grows as your business's value increases as do their chances of making lots of money when the business is sold.
If this is your longterm business strategy, finding angel investors can be an ideal funding route for your business.
7. Bank/Credit Union Business Loans
Banks offer loans across different time frames along with varying interest rates and payment structures.
A significant thing to note with bank or credit union loans is that collateral will be part of the equation.
This means that the bank or credit union typically holds a stake in some tangible asset that you own (i.e., car or home) in case the loan can't be paid back.
For this reason, understanding your loan's terms and payment structures is essential.
Consider speaking to multiple loan professionals as you apply for loans, so they can guide your decision-making process and possibly find competitive rates for you.
8. Bootstrapping
Bootstrapping is the tried and true way of funding a business in which you use your personal capital.
Many small businesses have seen success from bootstrapping with the following benefits:
- It builds resourcefulness skills
- It eliminates the need to pay back debts or loans
- Bootstrapping ensures you retain ownership and creative control
- You’ll have less immediate outside pressure to turn a profit
- You enjoy more decision-making freedom
Bootstrapping may require several months, if not years, of saving capital to fund your business – or earning it by other means, such as holding on to a job with a paycheck. A good rule of thumb is to create a careful business plan that outlines your costs and allows you to forecast overhead and profits for a specific timeframe.
Lastly, here are some potential downsides of bootstrapping:
- Typically less capital to invest in growth
- More risk as you have only yourself to depend on
- Waning capital reserves may add pressure to bring in revenue
9. Public Equity (IPO)
Public equity deals with funding from the public in exchange for shares in your company. This form of financing is typically available in the later stages of a business, as there are specific requirements to go public.
Here, retail and institutional investors can invest in your company, with the clear expectation that they will see an ROI.
The company being invested in has a lot of say over how to use the invested capital.
On the other hand, going public comes with plenty of regulatory requirements and fees that may not be the best fit for a small and medium-sized enterprises(an SME). In addition, investors are part owners. They’ll be keeping a close eye on their investment, and will have the right to participate in company decision-making.
Still, public companies tend to get more public attention, garner trust faster, and thereby gain more buyers from the market.
Growth Capital May Be Everywhere
Today's businesses have numerous ways of reaching their funding goals if they know where to look.
We hope this guide on sources of growth capital has given you some new insight and ideas for where to start – whether you’re just getting your business up and running or taking it to the next level.
Check out our other business articles to help you fill knowledge gaps in your entrepreneurship journey!
ABOUT THE BBD
The Black Business Database is a directory of vetted companies created by the Black Business Council in 2022 to provide a platform for, as well as make it easy to find and connect with, certified Black-owned businesses in Montgomery County. Listed companies have been verified as Black-owned and are active and viable players based in the county and conducting business in the larger DMV (D.C., Maryland, and Virginia) metropolitan area.