As a business owner, raising capital is part of running a growing and lasting business. This is true whether you’re at the beginning of your entrepreneurial journey or the CEO of an established company. In fact, raising capital plays an essential part in taking your business to the next level.
While the process may seem daunting, raising capital can be broken into manageable steps. This article will explain everything you need to know about raising capital for your business.
What Does Raising Capital Mean?
Raising capital is a means that lets companies launch, expand, and oversee daily operations by approaching investors or lenders. Businesses can raise funds through debt or equity capital, with debt typically costing less than stock because debt has recourse. However, there is no straightforward strategy for raising capital as it all boils down to the stage and size of your company, the amount of money it needs to scale, the time frame, and your goals for the business.
Ways to Fundraise and Raise Capital
If you’re looking to raise capital, you have a few options, including equity financing and debt financing. Here’s more on these three types of raising capital and how they work:
1. Equity financing
When you raise capital in exchange for equity, investors receive a share of your company’s future earnings in return for their current investment in your company. And unlike debt financing, you do not need to pay back the amount invested by the shareholder or investor. This makes it a solid option if you are trying to get your business off the ground.
When should you raise equity?
You should consider raising equity when:
- Bootstrapping is out of the question. Bootstrapping, otherwise known as raising finance by yourself, can become problematic after a certain point, especially when you’ve run out of cash or need an influx of capital to keep your business going.
- When you do not have collateral. Collateral is a sellable item you offer to the banks in case things go wrong. If you’re out of collateral, equity financing makes sense as you look to raise capital.
2. Debt financing
Debt funding is used by businesses that borrow money with a promise of returning it at a later date with interest. Loans are borrowed from a lender, while debt money is raised through bonds or debentures. Debt is offered by banks and non-banking financial institutions. It’s usually secured against collateral — something that can be sold that you can give to lenders in case you cannot repay your loans.
When should you opt for debt financing?
You should opt for debt financing:
- When you need a small amount of capital. Giving up equity for small amounts of cash is not feasible, making debt financing a great option.
- If equity dilution is not an option. If you are growing at a high rate and don’t want to dilute your company’s equity, debt financing can be a cost-effective alternative, as the interest on debt is tax-deductible.
NTIB Finance & Consulting: Helping Your Business Secure Capital!
At NTIB, we have a strong lender we can connect you with for a working capital loan. Your NYC business may be eligible to receive up to a $500,000 loan with 3 to 5-year terms. No mortgages or equipment liens will be posted. Our process is fast and simple, and once approved, your loan will likely be funded in less than 3 weeks.
Schedule a free consultation with us to learn more.