Americans are increasingly looking to start their own businesses, with around 29% citing being their own boss as the biggest motivation when permanently leaving the workforce. The latest statistics by the U.S. Small Business Administration revealed that there are more than 32.5 million small businesses, with 500 and fewer employees operating in the U.S. as of 2021.
While the pandemic may have kickstarted the Great Resignation, and left a sentiment of entrepreneurialism, Americans are seeking ways to generate and grow startup capital for their small business endeavors.
According to data released by Kabbage Inc in 2019, around 65% of entrepreneurs shared that they do not have enough money to start a business. Additionally, more than 98% of current entrepreneurs state that they have enough capital flow to survive for the first 18 months.
Financial stability and capital security are imperative to surviving the first few months after starting a business. So, entrepreneurs are thinking of new and innovative ways to raise capital for their businesses, using both a mixture of traditional and modern approaches.
Here are some smart ways to increase capital for your new business in 2022.
Most entrepreneurs will likely dive into their personal savings and finances when starting a new business. This is the most common method of growing financial income for any new startup according to Forbes.
Using personal savings can help in a variety of ways, the most important being that it’s available immediately without having to endure additional administration procedures. Apart from that, using your savings can also help you plan more thoroughly, as you’re left with the mindset of using your own personal finances and not someone else’s.
Something many entrepreneurs should consider when using their savings is to make sure they put enough savings aside to help cover personal expenses. This can mean that the initial amount you can use is somewhat less, but it also gives you some sort of safety net.
Find an Investor
Making use of private investors, also sometimes referred to as “angel investors” can quickly drive up financial startup capital. While this can be immensely beneficial towards the business, it does however come with additional problems.
Before agreeing to any form of investment, entrepreneurs are advised to review the agreement, and the motives behind the capital funding. While some investors will only ask to hold a share percentage in the business, some may require you to offer them more stake in the business and its operations.
There’s both a winning and a losing side to using angel investors, but in most instances, entrepreneurs have found that those who do eventually invest in their business and see the potential thereof, can help build and establish a network of contacts, create financial stability for the business, and generate market influence.
Leverage Social Capital
Perhaps you’ve never really known what it’s called, but social capital involves using personal contacts such as friends and family as potential shareholders and investors for your business.
Friends and family members who can assist with initial capital funding can be a great asset to your business. There is also the possibility that some of them can assist in a different capacity, other than just being an investor, and can contribute to the operational aspects of the business during the first few months or years of startup.
It does however come with a risk factor to it. A lot of modern entrepreneurs have shared that mixing business with friends and family can result in tarnished relationships. Borrowing money, in any form or capacity from friends and family means you are more determined to make the business successful and to be able to repay them.
Consider what would happen to your relationship with your friends or family members if you aren’t able to repay them? While this may be seen as a “last resort” type of solution, be aware of how it can impact the entire dynamic within your business.
Small and niche businesses have been making use of crowdfunding initiatives and platforms as a way to raise startup capital. Crowdfunding involves making use of the general public to fund and support your business ideas.
There are several crowdfunding platforms available some include, Kickstarter, AngelList, Indiegogo, and Accion, among others.
Using these platforms, entrepreneurs should essentially put their best foot forward, and use their marketing and sales expertise to get people interested and excited about your business. Something to keep in mind is that with crowdfunding, those who sponsored some form of capital for your business may not expect anything back unless otherwise promised.
On the other hand, crowdlending is where you offer a service or product in return for their capital effort. Entrepreneurs can make use of either but are strongly advised to consider the terms and conditions they create for themselves when taking up a crowdfunding or crowdlending venture.
Government Grants and Support Programs
Most developed economies will have some sort of government-backed support system that can assist small businesses and entrepreneurs with capital funding. These programs cover a wide range of different industries which is great for entrepreneurs starting a business in a niche-specific industry.
Different categories exist and can assist a range of business owners and entrepreneurs. In the United States, the federal government provides grants and support programs to entrepreneurs through the Women’s Business Center, Veterans Outreach Business Center, minority-focused business grants, and entrepreneurs who come from previously disadvantaged groups.
These can help boost your capital funding, but getting approval may take some time, as there are a host of different procedures you need to complete and undergo before you can receive any grant.
It’s also good to consider that although you may not receive a large portion of capital funding, these programs won’t necessarily require you to repay any of the money, but there are prior requisites you will need to adhere to when applying.
Offer a Service
Some businesses can opt to make use of their services to create a capital stream for themselves. This entails the owner purchasing the needed equipment to create and deliver a certain product or service. Through the sale of services and goods, entrepreneurs can now increase their funding and purchase additional equipment, or goods.
It’s not a conventional way to start your business, but many entrepreneurs find that working like this helps them to offer their services and products at an early stage, and as demand increases can improve their offering. It requires minimal upfront expenses, and from the start, you may be able to turn a profit.
While starting a new business or being an entrepreneur can lend you better flexibility and business freedom, one should consider the financial factors which are involved throughout the initial startup process.
Entrepreneurs can make use of a combination of the above-mentioned methods to generate capital for their business endeavors. Looking at how your business will be operated, it’s advised to have a realistic financial goal, and from the very start work with what you have, even if this requires making use of personal savings.
Finally, be creative in how you can turn your products or services into a profit from the very start. This way, you will have a clear indication of how to prioritize future business purchases, allowing you to increase the usability of your startup funding.