Most businesses need some funding to get started. Getting business funding remains one of the biggest challenges entrepreneurs face. To reduce time and hassle in getting funding for your business, you must understand the options available to you. Below is a brief introduction to some of the most common business funding options available.
Friends and Family
It’s a lot easier to get capital to start up your business from members of your family or friends than from a bank or private equity. The main drawback is the added pressure of getting money from them. No one wants to lose their parent’s life savings in a failed business venture.
When receiving money from family and friends, it’s always a good idea to get it written down, so everyone is clear. It should be clear whether the sum of money is a loan or equity investment; this avoids confusion.
You!
It’s simple, if you believe in your business, you invest in it. Investors will be reluctant to invest in a company where the owner has not invested money. Do not risk your overall financial well-being on your business but you should be prepared to invest.
Business Incubators
For seeds and start-ups, business incubators are great for gaining funding, knowledge and support as they provide them with a base with other similar-sized companies.
Crowdfunding
This is a new way of getting business finance where large groups can invest small amounts of money in your business. There is a growing number of crowdfunding websites; search for the most beneficial ones for your business.
Banks
Going to the bank is the traditional way to get finance for your business. It is still a viable option if you are an established business and prepared to offer security against your loan. Getting finance from a bank is unlikely if you are a seed or start-up without a long trading history.
Banks provide small businesses with credit cards and overdrafts that can be very helpful in difficult times. It would be best if you used them as emergency funding only.
Government Grants & Loans
Most governments have schemes that issue small grants or loans for small businesses. The application process can be long and complicated. Governmental grants and loans may also require match funding from the business owner. Before applying for a government-backed loan or grant, seek professional advice.
Angel Investors
Business angels are wealthy individuals who invest in small, fast-growing companies for their own profit and enjoyment. They usually are established entrepreneurs who enjoy the thrill of working with a start-up. Business Angels want to be actively involved in the company but do not want to take place in the day-to-day running. Business Angels invest from $10,000 to $1,000,000 in exchange for up to 50% of the business.
Venture Capitalists (VC’s)
Venture capital is financial capital provided to early-stage, high-growth startup companies, usually in the technology industries. Do not approach a Venture Capitalist if you want investment in your business of less than $0.5m.
Invoice Finance
Invoice finance is great for funding your business through your sales. Cash flow for small businesses is tight; invoice finance allows you to receive 80%-90% of your sales within a couple of days instead of 30 or more days.
Others
Leasing – Leasing instead of buying assets and equipment relieves pressure on your business‘s cash flow.
Corporate Venturing – A larger company may buy equity in your business.
Stock Markets – For larger and established medium-sized companies floating your business on a stock exchange may be a viable option.
Conclusion
Flexibility is the key to finding business funding for your business nowadays. There are more options available to you now than ever before. Do your research, find the most appropriate sources for your business type and funding requirements, and prepare your business plan application thoroughly. Even if you don’t find business funding from your preferred source, several other business financing options are available.
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