As an entrepreneur, you face many challenges but getting the right amount of small business funding as per our needs is not an easy quest.
Financial needs will vary according to the nature and size of the business. Firstly, you will have to decide whether you’ll be looking for debt or equity financing. These are the two key sources that will help you raise capital for business.
Debt ﬁnancing involves borrowing funds from creditors with the stipulation of repaying the borrowed funds plus interest in the near future.
Debt can be used for short or long term schedules.
Whereas, Equity Financing involves exchanging a portion of the ownership of the business for financial investment without any repayment. Equity financing allows the investor to have a share in the company's profits.
Let's acquire more knowledge on these :
Startup Funding Examples through Equity Finance -
1) Bootstrapping -
Bootstrapping, also known as self- funding means expanding your business with little or no outside investment and relying on your savings and revenue from sales.
It’s not easy to do, but it’s an incredibly rewarding and inexpensive route an entrepreneur can explore while raising capital.
2) Venture Capital -
Venture Capital is the finance that comes from venture capital firms or investors to startups or small businesses with a long-term growth perspective. It is a way for companies to receive money in the short term and for investors to grow wealth in the long term.
Venture Capital provides the company with an opportunity to expand and build valuable connections in the business world which would help them grow and be successful. Venture Capitalists being trustworthy and efficient at business building strategies provide valuable guidance and expertise which guides the business to succeed.
3) Angel Investors -
Angel Investors are individuals that are willing to invest in startups to provide capital after ascertaining the potential of the enterprise. Angel investors invest in startups and help in the establishment of the new business as a way of protecting their investment.
They focus on early-stage financing and invest lesser amounts than venture capitalists, you can find them online or talk to your chamber of commerce.
4) Friends And Family -
You can take up private financing from friends and family in the form of equity financing by selling a part of ownership to them. This at first may seem like a good source but can get a little tricky. Make sure to be thorough with the pros and cons of this source of funding.
5) Personal Savings -
The easiest and most cost-effective way to provide financing for your new business is to use your savings. In case you don't have enough to cover all the funding you need, you can sell or mortgage your assets and possessions.
6) CrowdFunding -
Crowdfunding is a way to raise money from a large number of investors through various platforms efficiently. These people pool together small individual investments to provide the capital needed which can be equity, debt, or reward-based. Crowdfunding has grown as an excellent way for startups as it provides a platform with a huge audience to validate their business and it isn't as stressful as reaching out to venture capitalists and angel investors is. It's also said to be way more efficient as compared to traditional fundraisers.
Startup Funding Examples through Equity Finance -
1) Small Business Administration -
The SBA was formed to boost the economy by assisting small business owners. It connects small business owners with lenders to help them finance, grow, and start businesses.
The SBA doesn’t give loans directly, we have to deal with the local banks to process the loan. The guidelines for SBA loans are similar to that of standard bank loans until and unless the company qualifies as a small business according to SBA.
2) Short Term Loans -
Short-term loans are one of the fastest, and most popular, ways for small businesses to find the money they need with a short turnaround. With short term loans, you’ll have to repay your debt much quicker than you would with traditional term loans typically in a year. The lenders do provide same day funding and don't require many qualifications to surpass.
3) Traditional Term Loans -
The term loan is a straightforward, inexpensive funding solution. A traditional business term loan is a lump sum of capital that you pay back with regular repayments at a fixed interest rate. These are to be repaid in a span of 1 to 5 years.
4) Business Credit Cards -
Business credit cards are just like our standard credit cards but can be used solely for business motives and expenses. They have a better spending limit and lower interest rates. Although for a startup requiring huge capital, SBA or short term loans are a better option.
Ultimately, now that you better understand what startup funding options are available out there, you can go ahead and find the best suitable option for your business.