Raising business capital is an important undertaking for startups and growing businesses alike. However, when interest rates are high, the cost of borrowing goes up, which means that it can be far more challenging to secure affordable financing.
With this said, there are several strategies businesses can employ to raise capital effectively even in a high-interest-rate environment. While high interest rates on traditional loans can be prohibitive, alternative financing options may offer more favorable terms. For example, the following alternative options may be attractive to you – whether you’re starting a company or looking to grow an existing enterprise – when interest rates are high:
- Equity financing: Selling equity in your company can result in substantial capital without the burden of debt repayment. Angel investors and venture capitalists are potential sources of equity financing. This approach can also bring valuable expertise and networking opportunities to your business.
- Crowdfunding: This option allows businesses to raise funds from a large number of people who each contribute a small amount; allowing your company to raise capital and build a community of supporters.
- Revenue-based financing: This option involves repaying investors with a percentage of your future revenue. This approach can be more flexible than traditional loans, as repayments adjust with your revenue flow, which can be particularly useful during periods of fluctuating income.
With all of this said, before seeking external capital, you may want to do what you can to maximize your internal resources to reduce the need for external financing.
Before you make a move
Improving your financial health can make your business more attractive to lenders and investors, even when interest rates are high. Take into consideration, for example, that both personal and business credit scores can affect your ability to secure financing. As such, you’ll want to do what you can to pay down existing debts, resolve any errors on your credit report and maintain a good payment history.
You’ll also want to keep in mind that even when interest rates are high, it may be possible to negotiate favorable terms with lenders. Exploring offers from multiple lenders and comparing offers can also help you find the best available terms.
Raising business capital in a high-interest-rate environment often requires creativity, strategic planning and leveraging a mix of financing options. Seeking personalized assistance is a good way to get started.