What Does It Mean To Raise Capital?

Whether you are beginning to raise finances for your business or simply curious as to what the news is talking about, raising capital can have many questions attached to it.

When raising capital, a business or an entity essentially seeks to raise finances for their business by those willing to invest that money into it. These investors can take a variety of forms, from personal contacts, the accumulation of loans to support your business ventures, and many other methods as discussed below.

Here we will explore what capital is in greater detail, why business have to raise capital, the methods that they use to do this whilst also discussing the applicability of shares in this equation as well.

Why Do Businesses Need to Raise Capital?

Without capital, business failure is likely going to be on the horizon. Raising finances is integral to success, as this will form the core part of your business. For example, if you are a new company, employees must be financed for their work, and in order to do this work, they must have adequate tools, and other pieces of equipment in order to complete their tasks successfully. Also, if you are not an online business, you will need to rent land in order to have a place to facilitate working hours. So, everything in business requires the raising of capital. 

The capital that is raised will allow businesses to remain competitive in their markets. Also, by raising capital and ensuring that your workforce has access to the best possible equipment, their productivity will likely rise, which has many benefits for you, as you can sell more of your products at once, allowing you to increase your profits as the supply of your products increase. Plus, whilst waiting for your profits to begin flowing into your business accounts, capital is the only finances that businesses have to finance their necessities, making the raising the finances of crucial, especially in the starting stage of your business. 

It can still be relatively important in the long term, but as long as you are making normal profits and enough to keep your business afloat, the necessary of raising other forms of capital diminishes, but it can still be significant for other businesses as each business is different.

What Are The Ways To Raise Capital?

Raising capital can occur in a multitude of ways. If you have good familial connections and friendships, it is likely that they will provide support to you during the beginning of your business. If you are looking for a more professional venture however, business angels may be your best answer, and they will likely strike a deal with you in order for their support in your business, in the form of either funding, or general advice on the best ways to run your business, for a stake in that business. 

If your business also answers an ethical or government objective, you may be eligible for subsidies to support your business ventures. This is seen a lot in businesses in the arts, or businesses that have a political agenda, likely being able to gain capital from external grants.

In line with this idea of a business opportunity that seems to appeal to a variety of people, it may be worth setting up a crowd funding service to finance your business as you will complete two goals, by beginning to scout your target demographics allowing you to register the strong demand for your product, but at the same time, allow your business to be heavily financed for its early days. 

However, to this day, the most popular option continues to be the simple bank loan. But they really aren’t that simple at all. While you may secure trusted funding from a trusted authority, this process may be long and tedious, but if you are willing to put up with that for potential profit in the long haul, either a short term loan or a long term loan may be the best route to go in order to ensure businesses success.

You may also be interested in mingling some of these methods together, but make sure you know that if you are getting loans that you are certain you will be able to pay them back, whether or not your business takes off. However, if you are interested in raising capital in the form of offering shares, this next common question may be for you.

Why Do Companies Issue Shares?

Raising shares is simply another method that businesses use in order to raise capital to be pumped into their businesses. Shareholders can essentially purchase a stake in a business, which, in some circumstances, can give them sway in decision making opportunities for businesses, which, unfortunately means you may lose a portion of your business to these shareholders, and if you would like to retain control over 100% of your company, this option may not be viable for you. 

Nevertheless, those with business knowledge in running the business may be able to provide key advice, as a business angel might do, but for each shareholder you are sacrificing much less of your business in order to allow this. You also gain the profit of actually receiving capital as opposed to paying it out to shareholders, essentially allowing success! If you are also issuing shares in addition to other methods of raising business finance you may find shares extra useful, as if you are borrowing and taking out loans, in the future the return profit that these shares can generate into your business long term will allow that loan to be financed, explaining why a variety of companies do choose to issue shares.

The significance of raising shares is a topic of varying importance from start-up to start-up, as you do have to consider the concept of sacrifice to allow a longer-term profit and allowing your business to become not just your own voice, but an entity of many voices instead.