Entrepreneur

No Money, No Talk - Here Are 10 Ways For S'pore Business Owners To Raise Capital

Out of the vast number of small businesses that fail each year, nearly half of the entrepreneurs cite a lack of funding or working capital as the biggest reason of failure.

This finding comes as no surprise since money is indeed the bloodline of any business.

That said, capital is essential in running a revenue-generating business — which is also why entrepreneurs always question how they can go about financing their startup.

Here is a comprehensive guide that lists 10 funding options for startups that will help you raise capital for your businesses:

1. Bootstrapping

The most obvious option is to self-fund your startup.

This is especially effective when you are just starting out as entrepreneurs often have trouble getting funding without first showing some traction and a plan for potential success.

You can invest from your own savings, or get your own family and friends to contribute. This will be easy to raise due to less formalities and compliances, plus less costs of raising.

Self-funding or bootstrapping should also be considered as the first option.

When you invest with your own money, you are tied to the business. And at a later stage, investors will see this as a good point — but this is only suitable only if the requirement is small.

Some businesses however, require money from the very first day so bootstrapping might not be a good idea for those models.

2. Equity Crowdfunding

Equity-based crowdfunding is when individuals invest in shares sold by a company and receive a share of the profits in the form of a dividend or distribution.

While enabling startups to raise money without giving up control to venture capitalists, it also offers small investors the opportunity to earn an equity position in the venture, which may otherwise be impossible for them.

If the business is successful, the invested amount most of the times gains in value. If not, an investor always stands the risk of losing any invested funds.

Some popular crowdfunding sites are Indiegogo (tech or creative projects), Kickstarter (tech or creative projects), FundedHere (startups), Fundnel (startups), and GoFundMe (for personal reasons).

3. Angel Investment

Angel investors are individuals with surplus cash who have a keen interest to invest in upcoming startups.

They also work in groups of networks to collectively screen proposals before investing, and can also offer mentoring or advice beyond just capital.

This type of investment generally occurs in a company’s early stages of growth, with investors expecting up to 30% equity.

Check out the list of angel investors in Singapore here.

4. Venture Capital

Venture capitals are professionally managed funds used to invest in companies that have huge potentials.

Venture capitalists usually invest in a business against equity and exit when there is an IPO ar an acquisition.

They provide expertise, mentorship, and acts as a litmus test of where the organisation is going, evaluating the business from the sustainability and scalability point of view.

A venture capital investment may be appropriate for small businesses that are beyond the startup phase and already generating revenues.

The downside to VC however is that they have a short leash when it comes to company loyalty, and often look to recover their investment within three to five years.

If you have a product that is taking longer than that to get to market, then you might not appeal to them.

They typically look for larger opportunities that are a little bit more stable, such as companies having a strong team of people and a good traction.

You also have to be flexible with your business and might sometimes need to give up a little bit more control, so if you’re not interested in too much mentorship or comprise, this might not be your best option.

Some of the well-known VCs in Singapore are B Capital Group, Golden Gate Ventures, Jungle Ventures, 500 Startups, Sequoia Capital, Monk’s Hill Ventures and Quest Ventures.

5. Business Incubators And Accelerators

Though used interchangeably, there are a few fundamental differences between the two terms.

Incubators are like a parent to a child, who nurture the business providing shelter tools, training and network to a business.

Accelerators more or less do the same thing, but to put things into perspective: an incubator helps a business to walk, while accelerator helps to run or take a giant leap.

These programmes normally run for 4 to 8 months and require time commitment from the business owners.

You will also be able to make good connections with mentors, investors, and other fellow startups using this platform.

A list of some incubators and accelerators in Singapore include Startupbootcamp Fintech, DBS HotSpot Pre-Accelerator, The Open Vault @ OCBC, PayPal Incubator, Muru-D, Singtel Innov8, and Incubator Development Programme by SPRING Singapore.

6. Business Plan Competitions

Such competitions are on the rise, and this has tremendously helped to maximise the opportunities for fund raising.

Business plan competitions encourage entrepreneurs who are brimming with business ideas to kickstart their own businesses.

In such competitions, they have to either build a product or prepare a business plan, then pitch it to a panel of judges.

Winning these competitions can not only win you attractive prizes that can help to boost your business, but also gain you some media coverage.

As such, it’s imperative to make your project stand out in order to improve your success in these contests.

The business plan should also be comprehensive enough to convince anyone that your idea is worth investing in.

Get access to working capital loans via Vulcan Capital


7. Bank Loans

Banks provide two kinds of financing for businesses: working capital loan, and funding.

Working capital loan is a loan taken to finance the everyday operations of a company. They are not used to buy long-term assets or investments, but are instead used to cover accounts payable, wages et cetera.

On the other hand, funding from the bank would involve the usual process of sharing the business plan and the valuation details, along with the project report, based on which loan is sanctioned.

Almost every bank in Singapore offers SME finance through various programmes: DBS BusinessTerm Loan, OCBC Business First Loan, and UOB BizMoney.

8. P2P Lending

Peer-to-peer lending (P2P lending) platforms connect the public to businesses in need of funding.

They work just like a marketplace as it brings together people or businesses that want to lend money with those that want a loan.

Public investors can lend the money to these businesses and get returns based on interest rates when borrowers repay the loans.

Businesses who opt for this option can have access to financing that they may not have gotten approval for from standard financial intermediaries.

Furthermore, the borrower gets a more favourable interest rate on the loan that the one it would have otherwise gotten from a bank.

Some P2P lending platforms in Singapore include Funding Societies, MoolahSense, Capital Match, and Vulcan Capital.

9. Government Programmes

In this year’s Budget, the Singapore government has introduced three grants to help growing businesses, which combine existing grants to streamline the entire process for businesses.

SMEs that require funding to grow should consider:

  • Productivity Solutions Grant (PSG) – Designed to give SMEs the financial capability to adopt new technologies and productivity solutions. Started in April 2018, the PSG programme will organise existing grants to provide a seamless process for small businesses. Through the PSG, businesses can apply for grants covering up to 70% of costs for qualifying technologies or productivity solutions.
  • Enterprise Development Grant (EDG) – Combines IE Singapore’s Global Company Partnership (GCP) Grant and SPRING Singapore’s Capability Development Grant (CDG) to allow businesses to develop, grow and expand internationally. This grant will cover up to 70% of the costs of qualifying activities and are ideal for larger SMEs that have plans to grow their businesses overseas.
  • PACT Scheme – Developed to facilitate collaboration between businesses of all sizes. The programme combines existing grants that encourage partnerships between businesses of all sizes. It offers funding of up to 70% of qualifying costs, including costs related to knowledge transfer, co-innovation, business development and internationalisation. The PACT Scheme may be of interest for SMEs that interact with larger companies and would like to further develop those relationships.

If you comply with the eligibility criteria, government grants as a funding option could be one of the best.

10. Quick ways to raise money for your business

If you need quick ways to raise money for your business, you can check out these options:

  • Product pre-sale: Selling your products before they launch is an often-overlooked and highly effective way to raise the money needed for financing your business. Remember how Apple and Samsung start pre-orders of the products well ahead of the official launch? It’s a great way to improve cashflow and prepare yourself for the consumer demand.
  • Selling assets: This might sound like a tough step to take, but it can help you meet your short-term requirements. Once you overcome the crisis situation, you can always buy back the assets.
  • Credit cards: Business credit cards are among the most readily available ways to finance a startup, and can be a quick way to get money instantly.

If you are a new business and don’t have a lot of expenses, you can use a credit card and keep paying the minimum payment.

However, keep in mind that the interest rates and costs on the cards can build very quickly, and carrying that debt can be detrimental to a business owner’s credit.

How To Prepare Your Business For Fund Raising

If you want to grow really fast, you probably need external sources of capital.

Bootstrapping your startup for long isn’t going to cut it as it will deprive you of taking advantage of market opportunities.

While the plethora of lending options may make it easier than ever to get started, responsible business owners should ask themselves how much financial assistance they really need.

It’s also best to start with good corporate governance, as it might get hard to try and exert fiscal discipline mid-way throughout your startup journey.

Featured Image Credit: Lucas Law 

 

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