Small businesses always had a problem with acquiring loans, credit, and even mortgages. The income from a small business can rise and fall and therefore is seen as a risk by lenders. After the Pandemic, in which most small businesses experienced a significant decrease in revenue, obtaining capital to scale the business or even keep the doors open is now even more difficult than ever. There are methods, however, in which a small business can acquire capital now although it can take some work, some creative thinking, and of course, planning.
First, let’s look at the most common methods that small businesses are using to acquire capital.
- Merging with a larger business. Many small businesses are putting aside their pride and offering their services to larger businesses who then provide the working capital and revenue that is needed to stay in business. Watch any news medianow and it is apparent even larger businesses are engaging in this method.
- Joint Ventures. If a small business owner knows of another small business that is struggling to find capital a joint venture can lead to increased revenue and capital and only HALF, the advertising spend for both. Gone are the days when businesses could exist in their field only and sell only one product or service.
- Government grants and loans. There are many out there for small businesses. Calling the local, state, and even federal governments can reveal opportunities for low-interest loans and even “no payback” grants. It does take some time and research and there is a lot of competition for these so getting in quickly is needed. There is also usually a ton of paperwork and many records which must be submitted before approval so good record-keeping now is imperative.
- Joining syndication investors. This does not apply to all types of small businesses but should be investigated especially if a business is in real estate, lending, or insurance. Syndication means that many individuals, not just one or two, invest a certain amount per person in something that will return gains down the road and not cost each investor a fortune going in. If a small business owner does not want to syndicate their own business, they can, if they can afford it, Join syndication enterprises, and see monthly returns and revenues. The downside to this is that it is akin to playing the stock marketwith revenues increasing and decreasing without warning.
- Contacting venture capitalists and private investors. If a small business was doing well before the Pandemic, chances are a venture capitalist will show some interest if contacted. Of course, a solid business plan is needed as well as proof of all revenues and expenses. The downside to this is that the venture capitalist will want a portion of the business in return, and some can want as much as 51 percent of a business, leaving them as the primary owners. Research is needed into this area before proceeding. Venture capital is the hardest to acquire and of course, there is a part of the business that is taken over. Private investors are on the same level as venture capitalists and the terms are the same.
- Seek out Angel investors. The term Angel applies to them because they provide monies without wanting a portion of the business or anything in return. The Angel investor, usually a non-profit or person interested in others’ welfare, invests for altruistic purposes. This is a great way to increase capital for businesses that supply items or services to fulfill the goals and needs of society such as group homes and homeless shelters. Businesses that provide environmental goods and services are also a good fit for Angel investors, as are all types of animal rescuesand sanctuaries.
- Family and friends. Yes, this is difficult to do, but friends and family are emotionally invested in business owners. This connection will often lead family and friends to loan money with no interest needed. The problem lies with business owners who are embarrassed to ask outright or admit having financial difficulties in the business. No business owner should be too proud to ask family and friends for assistance.
There are ways to get the capital to keep a business afloat now, as shown above. All do take work and research, but it is better than losing the business. Business owners consider their businesses their “babies” and closing a business feels like a death has occurred to many owners. Reaching out quickly before the bills pile up too high will lead to more success as no one, not even family or friends will be interested in investing money into a business that is obviously on the verge of collapse or bankruptcy. If a business owner needs capital investments then the sooner, they act, the better off they will be.