For many small business owners, developing a great business plan is the easy part. However, even with a great idea, you won’t get far if you don’t have the appropriate funding.
Obtaining funding for your small business can be one area where many business owners struggle. You might not know which type of funding is right for your company or the steps you need to take to secure it.
With traditional options like bank loans and new innovations in online business funding, today’s small business owners have more options than ever before. One benefit to this is that funding is more accessible, but you still need to research your options to find the one that best fits your business.
The following are a few of the options you may have when looking for ways to fund your small business.
1. Small Business Loans
Getting a small business loan from a bank is one of the most conventional ways to fund a small business. You can use a small business loan for a wide range of purposes and you could also look into options like SBA loans. SBA loans tend to come with more favourable terms and lower interest rates because they are backed by the Small Business Administration.
One of the main advantages of a small business loan is that it is a way to fund your company without having to take a partner or sell part of your company. However, most banks have a strict approval process and there is a chance that you may need to personally guarantee the loan.
2. Personal Funds
There is no option more straightforward than funding your business with your personal savings. If the capital requirements are very low, it can be easy to start a business with your own money. With smart planning and some discipline, this approach that can work for many different types of businesses.
The main advantages of funding your business with your savings is that you do not have to take on any investors and you’re not required to pay the money back with interest. That said, it could be limiting if you do not have a lot of money to start with. Not to mention, you’ll also be taking a risk with your personal funds.
3. Friends and Family
Borrowing money from friends and family members can be a good way to get
your small business started. It is generally more affordable than borrowing from a bank but it does come with risks that do not exist with other funding options. If things go wrong, it could significantly impact your personal relationships.
If you are going to borrow money from friends and family members, it is important to manage their expectations and remain transparent. You might need to sell them on the prospect of lending you money, but you do not want them to come away feeling as though you were dishonest with them.
4. Take a Partner
If you have a great idea but lack funds, taking a partner can be a good way to help jumpstart your business. Along with helping you get the funding your business needs, it can also be a way to share some of the workload. The only downside is that you are going to have to cede some control of the business to the partner in order to obtain their financial backing.
5. Venture Capital
Venture capital is a common form of funding for startups. With this type of funding, investors provide capital for a stake in the future potential of the enterprise.
Beyond being a way to obtain funding, venture capital can be advantageous because it can also come with additional resources and insights from the investors. The downside to this option is that you are probably going to have to give up some control and you may have to make concessions to the investors.
6. Equity Financing
Equity financing is a good way to raise a considerable amount of money. With this option, you are selling shares of the company in exchange for the funding you need.
While it is an effective way of raising a large sum of money, it is complicated and expensive. Furthermore, you are selling off part of the company. With other stakeholders, you are going to have to allow the investors to have their say in the affairs of the company.
7. Angel Investors
An angel investor is almost the exact opposite of a venture capitalist. Instead of investing strictly for the return, an angel investor provides funds for personal reasons. In many cases, the angel investor is a friend or family member who has the means to provide the funds needed.
With an angel investor, you can get quick funding and they usually do not take an active role in the day-to-day operations of the business. The trouble with this option is that it is not accessible to most business owners. If you don’t already know a person who can act as an angel investor, you are unlikely to find one.
8. Government Grants
Depending on several factors concerning you and your business, you might qualify for a government grant. This type of funding is ideal if you can qualify because most grants do not have to be paid back. However, the big question is your ability to qualify for a grant. The government doesn’t just hand out free money to anyone, and the majority of businesses will not qualify for a grant.
9. Equity Crowdfunding
Equity crowdfunding is one of the newer innovations for funding a business online. With this idea, you sell shares of the business online. This allows you to raise money in a way that is similar to traditional equity financing without having to deal with all of the complications that come with state and federal securities laws.
The advantage is that it provides the business with access to more investors and more funds. However, this is a relatively new way of funding a business and all of the legal issues have yet to be worked out.
10. Non-Equity Crowdfunding
This is the type of funding that comes to mind when most people think of crowdfunding. It is a way to raise capital for your small business without having to give the investors a stake in the company. Instead, most businesses that use non-equity crowdfunding agree to give some type of gift or an early release of the product to the investors.
This is a low-cost way to raise money without having to share profits or hand control over to other people. The only downside is that it can be difficult to raise money quickly and you usually have to give some percentage of the funds raised to the site that hosts the campaign.
Clearly, there are many options to choose from when funding your small business dreams. There are pros and cons to each, so it’s important to think carefully before selecting the one that’s right for you and your business.
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