The short answer is that it depends.
The long answer is that there are a few factors that are important to determine the best time for a business to raise funds.
You see, raising capital is difficult enough, and if you don’t consider the timing, you may raise money too early or too late.
When you raise money too early (when you are not ready to use it), especially when it’s a loan, for instance, you will pay extra in interest payments.
If you get the loan or capital too late, the purpose of the loan might be defeated.
A good example is when you try to raise capital to take advantage of a new opportunity.
A delay in raising needed finance can make your business lose out.
Either way, the effects of raising capital at a bad time needs to be avoided.
Factors That Determine The Best Time To Raise Money for Your Small Business
The right time to raise money is difficult to ascertain generally because it differs from business to business.
But for each business, the best time is determined by the purpose of the capital, the type of capital you want to raise, and the readiness or current financial position of your business.
1. The Purpose of the Capital
What you want to use the fund you raise for would determine when you would need the capital.
There are many reasons why small businesses need to raise capital.
A few of them include: –
– Business Expansion
– Purchase of Equipment
– Take Advantage of an opportunity, etc.
Each of these reasons or motivations to raise capital have varying timing. The business owner needs to determine what time is best to have the capital to achieve their purpose.
2. The Type of Capital
The type of capital or source of financing a business chooses to follow can determine when they should fundraise.
Many reasons determine whether a business would opt for a bank loan or equity investment.
Or any other type capital like: –
a. Family and friends
b. Bank loans
c. Equity investment
d. Crowdfunding, etc.
Some source of finance can take a longer time to raise funds and be disbursed, while others would take a shorter time.
The business owner needs to be aware of the time implication of their choice of capital.
And take action accordingly.
Like raising money via venture capital, which is usually equity financing, could mean the business owners need to spend a longer time to get their desired funds. And as such, they should not try to raise venture capital to meet an immediate financial need.
3. Business Readiness
Your business must raise money when it’s ready to use the funds.
Because, depending on the type of finance, like debt, for instance, it may become too expensive for the business to afford.
However, we sometimes recommend that businesses raise funds just before they need them. Because it would make the fund-raising process easy for them, and it will reduce the pressure and mistakes that rushing to raise money causes.
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