Capital raising for business growth – without borrowing
Written by Robert Marusco
When business owners think about how to grow, typically the number one decision to consider is how and where to get the capital required to implement their business strategy.
Taking out a business loan is generally the first (and possibly only) plan of action for most. If you’re reading this article because this is the exact decision you’re trying to make, pause here for a moment, there are actually a number of ways to source funds for business expansion, aside from a traditional bank business loan. We’ve listed these options, alongside some excellent reasons why thinking beyond a loan might be a better option for your expansion plans.
If you’re a relatively new business that lacks a substantial business history, it’s going to be incredibly difficult to secure a business loan. Banks generally need to see at least two years of financial documentation, you’ll need to show a period of profitability (or a clear path to profit) and prove that your business is not high risk. This can be near impossible for many young businesses.
If you are one of the lucky ones that do manage to secure a business loan, you’ll find that you’re now subject to consistent and sometimes considerable payments toward that loan. If for any reason, you’re not in a position to make your payments, your entire business can be at risk, from losing assets to complete bankruptcy. Taking out a business loan should not be a decision made lightly.
So, if you do need funds for growth, but a loan just isn’t for you, what to do? We’ve listed five other options to consider:
This option is very straightforward, all you need to do is ask current customers to pay for your products and services in advance. By changing your payment policy you receive funds before the beginning of a project, and you can decide how much of the product or service fee to collect in advance.
Another payment type to consider is a subscription model, which provides a steady stream of income on a recurring basis; this of course only works for some types of businesses, but it’s a model to consider when thinking outside the capital raising box.
Employing these methods means that the business will not need to fund working capital to grow and expand.
Starting a crowdfunding campaign will connect your business and what you’re selling with a community of interested donors/investors. The best products and services suited for crowdfunding are the ones with a community of people who deeply want the product or service your selling.
There are a range of crowdfunding types and a wide variety of platforms that facilitate crowdfunding, from Kickstarter to Indiegogo and many more. These platforms provide an inexpensive way to raise funds, build brand awareness, can help to validate a business idea, and can even be a way to market your new business or product to a group of potential new customers.
Find a complimentary business and partner up! Partnering with another business is beneficial for both, each can increase sales by introducing each other’s product or service to their client base, at no added cost. Plus the added benefit of delivering a wide variety of new products and services may attract a whole range of new clients.
A well-conceived partnership will allow businesses to in effect leverage each other’s assets to achieve mutually beneficial outcomes without the need to recreate those assets yourself and therefore avoid consuming or requiring funding.
4. Marketing Alliance
If partnering up is not for you, then think about a marketing alliance. This strategy is where two or more businesses agree to spread the word about each other to their customers, they then earn a ‘referral fee’ off any sales that eventuate. This strategy can bring in new revenue without too much advertising expense. The key to this one though is to make it worth everyone’s time, so make an effort!
5. Equity Investor
Seeking out equity investors for your business requires careful planning, focused management and a clearly defined strategy that can be articulated to potential investors (need help attracting investors? learn more here). To put it simply, private equity investors generally buy or invest in a business with the intention that it will improve its earnings or value by providing capital and expertise and then sell the investment at a profit.
Equity investors participate in a wide range of business types, markets and get involved at many stages of a business lifecycle from an entrepreneurial start-up to mature businesses.
To ensure you give yourself the best chance of success in attracting potential investors your business must be “investor ready” regardless of what stage the business is at in its development lifecycle.
If you’re contemplating the next big move for your business, remember to touch base with your business adviser to discuss your funding options. Whether you decide to go with a business loan, crowdfund or set up something more formal to raise capital from investors, it’s essential to seek guidance from a business financial adviser who can help you plan and strategise your capital raising efforts, make changes to your business plan, cut unnecessary costs and ultimately help you reach the long-term goals you’ve set out for your business and life.
If you’re considering your capital raising options and need advice, give us a call at 9217 2400 or contact us here, we’re happy to help and our first consult is free.
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This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.