There comes a time when you need to raise additional money to support your business.
You may need the funds to start a new business, or to grow, expand, or turn around an existing business.
Raising external capital typically happens after you’ve exhausted all your personal funds – your savings, your credit card, or selling your assets.
But before you reach out to ask for money, I hope you read this article.
It doesn’t matter if that ‘investor’ is a close friend, a relative, a bank, or an investment firm.
All money is not the same. And the wrong kind of money can cause you trouble and wreck your business.
A client of mine almost went bankrupt because she brought ‘bad money’ into her business.
And one of our students got into a bitter disagreement with one of his investors and ultimately lost the business he worked so hard to build.
A lot of horror stories like these exist out there.
And my goal with this article is to help you avoid the expensive mistakes that can make you a sorry victim when you make the wrong decision as you raise funds for your business.
These are the 7 important things to consider before taking money from an investor or bank.
1) The stage of your business
Every business is not the same.
And the stage of your business significantly affects how much money you can realistically raise from a bank or investor.
A business that only exists as an idea or in a business plan is much riskier than a business that’s already in full operation, has real customers, makes real sales, and has real cash flows.
Therefore, if you’re asking for money when your business is still an idea or a new startup, just know that investors will want a big share of the pie because you’re asking him/her to take more risk.
This same logic applies to businesses in the growth and maturity stages.
If you don’t know what stage of the lifecycle your business is in and how it affects your chances of raising funding, you’re taking a big gamble.
In the Funding Masterclass, you will learn more about the stages of business and the specific types of investors you should be targeting in each stage.
2) The source of capital
When you’re trying to raise money, you need to know what your options are.
Unfortunately, many entrepreneurs and business owners who want to raise money mostly focus on the banks.
But banks only give loans to certain kinds of businesses. And that’s why a lot of loan proposals sent to banks actually end up in the trash.
In fact, besides the banks, there are actually up to 15 other major sources of capital out there.
Some of these funding sources are informal, some are semi-formal, and there are several formal options available too.
In the Funding Masterclass, you will learn about the 15 sources of capital, the upsides and downsides of each one so you can make an informed choice, and real-life success stories and examples of entrepreneurs who have raised money from them.
3) The type of capital you need
Like I tell my clients, “all money is not the same.”
For example, $100,000 from three different investors may look the same, feel the same, and smell the same.
But they may not be the same thing.
That $100,000 can be debt, or equity, or a freebie (grants, donations, prize money, etc).
And based on the type of capital you raise, the terms, conditions, and consequences of that money may be totally different.
But you can’t just pick and choose the type of capital you want.
What you need to focus on is the type of capital your business actually ‘needs.’
In the Funding Masterclass, we cover the major types of capital, their upsides and downsides, and how you should choose the right one for your business.
4) The cost of capital
It’s likely that any money you raise from outside your business will cost you something.
In exchange for a loan, lenders (like banks), will charge you interest.
Investors will want returns and a good ROI on the funds they invest in your business.
In fact, there’s nothing wrong with capital that comes at a cost. As long as that cost is reasonable.
But there is a big difference between paying something reasonable for capital, and paying too much for capital.
This is often the reason why some healthy businesses failed after accepting capital that is too expensive because it sucks the life out of the business.
That’s why you need to be careful, especially when it comes to the ‘hidden costs’ of capital.
These hidden costs could be disguised as processing fees, management fees, trigger fees, or application fees (insurance, notary, legal, etc.).
In the Funding Masterclass, you will learn how to identify both expensive and cheap sources of capital so you don’t end up biting more than you can chew.
5) How you plan to use the money
What are you going to use the money for?
Are you planning to invest in long-term stuff like equipment, land, buildings, facilities, building the product or prototype, or research and development that could lead to proprietary knowledge?
Or do you just need the money for short-term working capital needs like salaries, rent, electricity and utility bills, and other “running costs” of the business?
How you plan to use the money changes everything.
It determines how much money you can realistically raise, the type of capital you can ask for, and how risky investors will think your business is.
But there is a proven way to convince potential investors that you deserve every penny you’re asking for.
And inside the Funding Masterclass, you will learn exactly how to do it.
6) The terms of the deal
Nobody will give you money as a loan or equity investment without terms and conditions.
That’s why you need to understand the terms of the deal before you accept outside capital. Else, you may be walking into trouble by accepting conditions you cannot meet.
In our experience, the terms of every loan or investment deal are usually about protecting the bank or investor’s interests in three areas: risk, power, and financial benefit.
Some terms and conditions can be so rigid and inflexible that they’re just unreasonable.
Remember, what you need is a person, investor, or bank who can give you the funds you need under terms and conditions that are fair and reasonable.
In the Funding Masterclass, you will learn the important elements you should look out for in the terms of any deal and how to protect your interests.
7) The non-financial benefits
While raising capital from outside sources, always remember there are some things money alone cannot buy.
In our experience, benefits like training, expert insights, mentoring, networking, and introductions to strategic suppliers, distributors, and business partners can be much more valuable than just giving money to a business.
So, when you’re trying to raise money, don’t just focus on the money alone.
Instead, think about those areas where your business needs help that capital alone may not be enough.
In the Funding Masterclass, you will learn how to access opportunities to raise money through grants that also come with some of the non-financial benefits I mentioned above.
Raise Up to $1 Million for Your Business
Are you looking to raise between $10,000 and $1 million (or more) for your business, project, or non-profit?
Have you been trying to raise money on your own without much success?
We can help you overcome this problem, so you can finally raise enough money to start, grow, or turn around that business.
Since 2015, members and alumni of our program have used creative strategies to raise over $5 million in grants, equity, and debt funding for different types of businesses and projects.
Are you ready to learn and apply the strategies we’re going to show you?
Get FREE access to our exclusive program and join other entrepreneurs who have successfully raised between $10,000 and $1 million for their businesses and projects.
See you inside. 🕥