Creative Ways Small Business Owners Raise Capital

Smaller businesses that need to raise capital have a long list of strategies at their disposal. Along with reducing the number of employees and converting to an all-e-commerce model, some owners turn to personal assets to soothe financial growing pains. Taking out second mortgages and selling life insurance policies are common tactics that deliver solid results. Other ideas that offer promise include downsizing the mission, taking on additional partners, and applying for conventional business loans. Here are details about some of the most productive approaches owners are taking to generate much-needed capital.

Pare the Work Force

The most obvious solution for those who want to increase their company’s capital resources is to reduce the workforce. Large corporations have been applying this technique for more than a century, so there’s no reason smaller organizations can’t do the same thing. Getting lean and mean as a way to cut payroll expenses is the standard first step of the process.

Sell Personal Life Insurance Policies

Raising capital for a for-profit entity means doing whatever it takes to generate funds that can be used to grow the organization, pay off debts, restructure, purchase equipment, acquire inventory, or finance advertising campaigns. For solo owners and businesses with few principals, personal life insurance policies represent a potentially significant resource. By working with specialists like the team online at PolicyBank.com, entrepreneurs can review a detailed guide that explains how to turn unneeded life insurance policies into cold, hard cash. If you own a small company and are paying premiums on one or more life policies you no longer need or want, the process of converting those intangible assets into ready to use money is straightforward. The arrangement can be especially beneficial for people older than 65 and whose policy face values exceed $100,000.

Convert to E-Commerce

Switching over to an e-commerce operations model can be a powerful, fast way to generate financial resources. The main advantage of e-commerce selling is that there’s no need to pay pricey commercial rent or retain large numbers of employees. Some e-merchant, no matter what they sell, run their enterprises as one-person shops from the comfort of a home-based office. For e-based entities with more than one employee, there are still so many cost advantages that the switch from an in-person, brick-and-mortar model to a 100% internet-based one is significant.

Get a Second Mortgage

Since the beginning of the last century, resourceful, creative entrepreneurs have turned to personal resources to bolster their companies’ financial health. One of the most common ways of acquiring funds for use in a commercial organization is a second mortgage on a personal home. In many ways, the move is like selling unneeded whole life insurance policies because it’s about using personal wealth to support a business venture.

Apply for Traditional Loans

Individuals who apply for traditional loans do so for a wide variety of reasons. Those who own and operate for-profit organizations have two options for applying: as private individuals or as business principals. Note that most financial institutions frown on writing personal loans for business purposes. However, some are more than willing to do so if the applicant has good credit and assets that can serve as collateral.

Shop for Partners

In the financial services industry as well as many other niches, ownership teams routinely turn to new partners to infuse capital and expand the range of expertise within the organization’s purview. Some view partnering as a last resort, while others welcome the chance for growth by broadening the scope of services and bolstering in-house talent. How do savvy entrepreneurs identify potentially helpful partners?

They utilize a variety of resources, including executive search firms, personal referrals, existing professional networks, informal contacts, and more. When looking for partners, be diligent about checking backgrounds, financial histories, work experience, and social media accounts. Giving partial control of your business to someone else can be an efficient way to raise capital if you are willing to take the time to vet candidates before bringing them on board.

Narrow the Company’s Mission

In the 1970s, there was a big push in academia to encourage companies to expand and widen their core missions. The goal was to help corporations grow by adding markets, customers, and fresh ways to boost profits. However, in the digital age, and in an economy where competition can be intense, expansion is not always the most viable approach. The idea of narrowing the mission statement can be the ideal strategy for owners of small enterprises who want to cut costs and focus on their most profitable activities. The potential result of this type of downsizing is more cash on hand, fewer products and services to track, less inventory, and manageable expenses. Additionally, choosing a single line of business means a reduced need to outsource, hire employees, and rent office space.

Justin Weinger

A married father of three, Justin Weinger works in private equity as a Corporate Finance Manager, he is also an avid blogger and personal finance enthusiast with a strong history of working in the automotive and publishing industry.