The biggest challenge a business owner is finding the necessary funds to start their business. Currently there have never been more funding options available to those looking to start something new. Depending on what a prospective owner is looking for can lead them to a funding plan which fits their needs. For example, if the owner is only looking to gain a small amount of funding they might not need to apply for a big loan from a bank. For example: owner would have to apply just for an inventory loan in order to keep their inventory stocked. Below are a few of the many funding options available for business owners.
1. Personal Funding
This is sometimes called “bootstrapping” and it is paying for the expenses of a business completely on your own. This can be accomplished by using money from a savings account or just money from another job. This form of funding is not commonly seen by first time business owners but out of all the ways to receive funding it is the easiest. Personal funding can be risky because the funds are personal.
2. Friends and Family
For those who do not have enough money to fund their business completely on their own, the next choice would be friends and family. This source of funding is good when seeking a small amount while also implying that the money might not be returned like interest would to a bank. Inviting family and friends to invest can also be a bonding experience if handled correctly. As long as both parties agree that the investment is a grant and that they are investing in the owner, not the business, there should be no conflict. If the business does well because of their contribution a reward for their effort would be appreciated.
Crowdfunding is using people all around the world to help fund your business. Think of it as a bunch of small investors with very few restrictions, which is just what many businesses need in the early stages of their development. Crowdfunding is a comfortable middle ground between asking friends and family for money or going to get a bank loan. This type of funding is allowed under the JOBS Act and is primarily completed online where millions of people have the chance to donate. There are normally different available payment size options for those interested in investing, each with their own reward. Small amounts will receive a small reward and big amounts will receive a bigger reward. This can all be decided on by the owner depending on what they think is appropriate.
4. Angel Investors
Angel investors is and individual, or a group of individuals, who invest into a business on the idea that they will receive a larger amount than they invested once the business is stable or that they will own a piece of the company. A business must meet their requirements before any deals are made. Giving up a piece of their company can make many business owners uneasy, however angel investors have experience researching the business that they are investing into and gaining the needed resources. Adding well educated investors will only make a company stronger. This option is for businesses that have already had their foot in the door and just need a little bit more help.
5. Bank Loan
A bank loan is a serious form of funding that is used it the later stages of forming a business. It can be difficult to obtain a bank loan because owners must provide several years of financial information on both the business needing the loan and the owner asking for it. Collateral must be agreed upon, in case the business falls through, and even then there is still a chance that the bank will refuse the loan. If the bank agrees to give the owner a loan there will be monthly interest payments that need to be handled. As time goes on the bank will become more familiar with the company and the owner of the business will be able seek additional banking loans.
6. Venture Capital
After a business is established they may need millions of dollars to grow further or expand. This amount of funding is much to large for a bank loan to handle and can only be obtained by venture capital funds. The final goal of venture capitalists is to sell your business once it has reached the top of its growth. This is done to earn a financial return for its limited investment partners.