Published December 11, 2007

How to Raise Money: Raise Funds for New Projects

If you have a small business and want to start new projects, then you will probably require additional funds.

Unless you have a rich uncle or aunt who has left you a large amount of money in their will (and most of us don't), you'll need some more reliable, traditional ways to raise financing for your new projects.

1. Banks

You can raise funds by taking out a loan from a bank. You ought to approach different banks and not just your own.

With that said, some banks are more flexible in their loan requirements than others. If you have property or stock that you can use as collateral, then you may be required to do so, especially if your business has a limited or spotty credit history. Generally, banks prefer property to inventory.

You will also have to submit copies of your previous tax returns, as well as details of the new projects that you want financing for. If your tax returns indicate that you made a healthy profit in previous years, it will be relatively easier for you to secure a loan, since banks also look at your ability to pay back the loan when considering your application.

If your credit and profit history are good, you can also get an unsecured loan where you will not have to submit anything as collateral - but the rate of interest on that loan will be probably higher. You could also take out a short-term or long-term loan, depending on your needs.

2. Venture Capital

If you cannot get funds from a bank, then you could try sourcing funds from venture capitalists. Venture capitalists are people or companies who provide funds for new projects or to start up companies in which they see potential and that have the potential to pay handsome returns.

To get venture capitalist funding, you will have to convince them that they are making the right choice (we're talking about profits here) by funding your project. The only problem is that they might become part-owners of the project, and they could end up controlling it if they feel that you are not up to the job or that they will get better results by executing the project.

Once you start earning money from your project, it is a good idea to pay back the money as soon as possible and exit from your venture capitalist agreement.

3. Friends and Relatives

If you have friends or relatives who can lend fund your new projects, then this may be a viable option, as it will involve the least amount of paperwork and inconvenience. You will still have to pay them a decent amount of interest on the loan amount.

It is still wise to simply take a loan from them and not make them partners or co-owners, as you might lose independence in your style of executing the project. You might also get more flexibility in repaying the loan.

As an incentive to secure the loan, you could also promise your friends or family a percentage of your profit margin. That way, if you earn more, they will get a better return on their investment in your project.

However, this is a debatable issue because it may not be wise to mix business with personal life. Be careful and make sure terms are clear and documented before proceeding with borrowing from friends and relatives.

4. Go Public

If your project is of a bigger nature, you can go public. You will need professionals to assist you in doing this. Shares of your company will have to be offered to the public though an IPO (i.e., Initial Public Offering). This initial sale of shares will help raise money for your new projects.

The people buying these shares will become co-owners of your company. Keep in mind that this route will only work if your company is relatively larger, with a few big projects planned in the near future. For smaller projects, the previous 3 routes are better options.

In the New Year, you'll need to start new projects to ensure the continued growth of your business. At least one of the above ways will ensure that you get the financing that you need.