When starting your own business, you need funding options. You need to make sure you have enough capital to ensure you can pay your bills until your company surpasses breaking even. Depending on the size and type of your business, you may need thousands of dollars monthly to cover your overheads.
If you’re wondering where to find business start-up funding, there are various options available to you. Each option will have its own advantages and disadvantages, and it is crucial to pick the funding that meets your needs and will work for your business.
Here are five funding options for start-up companies.
Personal investment
Also known as bootstrapping, meaning you put your own personal assets into your company. Banks and any funders you might have will want to see that you’ve financially invested into your business; this shows them your commitment to the venture.
If you can personally fund your business without risking your financial future, it may be beneficial. By funding your own business, you would not have to give up control or have input from others in how you run things. Doing so, however, means your own personal finances are on the line if things don’t go as well as expected.
Family and friends
If your family and friends have the capital to invest, you can always ask them for funding. They will loan you their capital that you will have to repay when your business makes a profit. The interest rates are normally much better than you would get at a financial institution and the repayment terms are more flexible.
Some issues can arise with borrowing money from your family and friends. Loved ones rarely have the capital to invest, and they may want equity in your business. If you encounter financial problems down the road, they will be affected, which can strain your personal relationships.
Investors
Your business could be a suitable model to take on either angel investors or venture capitalists. Both insert much-needed start-up capital into a business, but they will each require some form of power.
Angel investors often invest in small start-ups and help people by contributing financially and with their expertise. They may want a managerial role in your company; however, they may not expect high returns for their investment.
Venture capitalists invest in companies with high-growth potential, and they expect a healthy return on their investment. You will have to give up some equity or ownership in your company in exchange for their financial backing. If you decide to go with venture capital, you need to make sure the investors you’re bringing in have relevant experience within your industry.
Business incubators
Also known as accelerators, they will provide financial support and logistical resources to new companies—for example; business incubators may offer your business a laboratory so you can develop your products before production starts. As soon as the business enters the production phase, it leaves the incubator.
Grants, loans, and subsidies
Financial institutions and government agencies offer loans, grants, and subsidies for start-ups. The competition for subsidies and grants is high, and the amount you receive can vary. Grants will require you to invest your own personal money or prove you have substantial funding from other sources. When applying for a bank loan, they will require you to prove your business idea is solid and that you are capable of repaying the loan. If you are a new entrepreneur, you may have to provide a personal guarantee that the money will be repaid.
Final thoughts
There are a variety of funding options available for your business, and each will have its advantages and disadvantages. You need to know how much money to have to cover initial costs, how much control you are willing to let go of in exchange for funding, and how long it will take to turn a profit. Contact us, and we can help you choose the best option for you.
If you have any questions, feel free to Join the conversation…