In this week’s capital raising segment, we want to talk a little bit about the process and why you’re raising capital.
The most romanticized and glorified part of raising capital is a startup idea, and you go to angel investors, and then you go to venture capital. But most businesses are not that sexy. Most small business owners end up financing their small businesses with their own cash or with debt of some kind. So it really depends on what you’re trying to do, and you need to match the kind of capital to the effort that you’re trying to put in. If you’re trying to start something from scratch, then angel investing capital is probably your best bet. But most of the time, a small business just needs to buy a piece of equipment or want to open a new location, etc.
The other piece of figuring out what kind of capital you need to raise has to do with the time that we’re living in. Right now we are in a time of easy credit, easy government loans, not just PPPs but small business loans. That should dictate your decision as well because you always need to take into account the cost of capital. That’s always one of those mysterious things from business school. What is the cost of capital? What is the cost of equity? The cost of equity is your cost when you give up some piece of the business that you currently own when you’re trying to get it to the next stage. That’s a calculation that needs to be made. We’d strongly suggest that in these situations, you want to lean toward the debt. SBA loans can be frustrated and can take a long time, but they are almost always one of the lower cost options available to you, especially if you are capitalizing physical assets, maybe a new truck fleet, a new location, a new large piece of machinery, etc. Those loans are particularly designed for that situation, for capital investment. So take that into account when you’re raising capital, because capital is both debt and equity.
There’s a good article here from OnDeck for you to take a look at. If there’s anything else we can help you with, please let us know! We’d love to discuss how we might be able to serve you in your quest for capital. Reach out and give us a call.