Financing a business is obviously a big challenge for start-up funding, -expansion or money to hold on through the tough times. Only a super fantastic idea is not going to help anyone anyway. It is going to take some money to get it off the ground. Most of the entrepreneurs often have lots of questions at the beginning about the funding for their business. Depending on the type of business, a specific amount is needed. Many of them face problem in arranging the funds. But every problem has a solution. And, thus, to help -, we’ve come up here with few ways to effectively execute business funding.
Different Ways of Funding
Below some of the most common processes have been mentioned, to get your business funded easily. Choose the best which will fit the goals and apply as needed.
One of a traditional way of funding is equity raise. It requires compliance with federal securities laws and a number of other formalities. It is the process of raising the capital through the sale of shares in an enterprise. Basically, it refers to the sale of an ownership interest to raise funds for business purposes. The size of fund-raising can be large, but at the same time, it can be an expensive and complicated process.
This is a common type of small business funding where the company will seek funds from a venture capital firm in exchange for the firm’s stake in the company. Venture capital generally comes from wealthy investors, investment banks and any other rich financial institution. One will be benefited by the sophisticated backers and resources of a larger company; on the other hand, it will be a risk of losing some control of the company.
Another common type of funding a small business is by taking on co-ventures. This means taking on “partners” that will be involved in the day-to-day business. This will not only spread the workload but could also provide additional sources for business financing.
An angel investor is the one who can provide fast business funding either at the beginning stage of the business or during the time of business expansion. These investors are often from the entrepreneur’s family and friends i.e. they know the company owner and are investing for both personal and business reasons. The capital angel investors may provide only one-time investment to help the business propel. Pure angel investor does not get involved in day-to-day operations but may take a stake in the company.
Friends and Family
Traditionally, many individuals are raising money from friends and family for their small business funding. It is one of the most common sources of financing for start-ups as they often aren’t a commercial lending institution, but family and friends. One thing one should keep in mind is that it usually has a lower interest rate, but dealing with loans from friends and family can create personal issues.
Equity crowdfundings is a fairly new concept under the securities laws. It is the process whereby people invest in an early-stage unlisted company in exchange for shares in that company. This method allows companies to fund business through offering shares to the general public without significant hurdles. A shareholder also has partial ownership of the company and stands to profit should the company do well. The opposite is also true, so if the company fails, investors can also probably lose some, or all, of their investment.
Probably, one of the most conventional ways of quick business funding is through personal savings. Depending on the type of business, one may not need much money for the startup. And, if one has significant personal wealth, according to the choice, one may invest some amount or all of it to fund a business. Here there will be no investors, no interest payments, but there is a risk with personal money.
Small Business Loans
Another conventional ways to fund a business is through small business loans. These are exactly according to the expectations. The Small Business Administration, as well as local and national banks, provide loans to small businesses. Here there is no need to share the company, but the loans are most likely interest-bearing and usually need a personal guarantee.
Depending on the type of business, and the business profile or the personal profile of veteran, one may be able to get startup grants from federal or state governments or, possibly, local governments. While this type of small business funding is rare, it’s possible that someone can qualify for some government funding. The grants usually do not have to be paid back, but it’s really tough to qualify as the grants are not available to everyone.
-Shruti P. Jambhale