Most businesses will need money to hire more people, add supplies, increase office space, among others. Before looking for business funding, estimate the amount you need and then create a business plan. Improve your business by getting funds through methods such as venture capitalism, angel investors, and bootstrapping. Below are a few places that you can get money from.
1. Self-Funding
Bootstrapping means using your funds to finance your business, such as money from savings accounts and credit cards. It is a great idea because you won’t have to pay anyone back and won’t have a loan burden. It is the safest bet when growing your business.
Bootstrapping gives you complete control over your firm since you don’t need input from external investors. The profits are solely yours, and you have the freedom to make any decisions that will favor your company. You can spend your money wisely since the success of your firm depends on you.
Some risks include slow business growth, lack of support from corporations, and losing your funds.
2. Small Business Administration (SBA)
SBAs lend loans to small businesses that are developing. They will help you know what loans are beneficial to you and aid in applying for them. These centers connect entrepreneurs with angel investors for business funding. For a start-up, the SBA needs the business to supply at least one-third of the capital and personal or business assets to guarantee the rest of the money.
One of the advantages is networking through conferences with similar companies. You can also market yourself within your community and industry. Members of these associations get access to discounts on accounting and insurance services, which increases their benefits.
3. Angel Investors
These are business owners with high-profit companies who want to invest in growing businesses. They normally put a lot of money into businesses with potential: The Angel Capital Association, Gust Angel Network, and AngelList link entrepreneurs with interested investors.
They share success tips at all development stages. Also, they create more networking prospects through hosting competitions and events. They have relatively better interest rates and well-defined exit plans. The typical sources of angel investors include crowdfunding, wealthy individuals, and syndicate teams.
Before getting into angel investing:
1. Ensure your business is viable and have a firm that stands out in incredible ideas, a reliable team, and profit margins.
2. Find investors that suit your business needs, and cultivate strong relationships with them.
3. More importantly, don’t overestimate your company and prepare yourself for criticism.
Advantages
• It has a lower risk than taking loans because one does not have to pay back the capital if their business collapses.
• Companies with angel investors create many jobs.
• Angels provide financial experience, business expertise, managerial skills, and director services, enhancing a business.
• Many times, these investors reinvest returns
• They don’t ask for high monthly payments
• They are in all industries
• They require organizations to show growth and enhanced venture performance in website traffic and ratings, which improves their gains.
Disadvantages
• You give up complete control of your business
• It isn’t easy to find an ideal and stable angel investor
• Angel investing has cases of malpractices too
4. Venture Capital
If you need a large amount of money, venture capitalists will help you with business funding. You will only require a comprehensive business plan. Before getting into venture capital, have an exit plan because venture capitalists (VCs) want to get a return of 3-10 times their first investment in a span of 5 to 7 years.
Other entrepreneurs and investors can connect you to venture capitalists. Also, the National Venture Capital Association will link you to VCs to pitch your company.
VCs invest money for their clients. To avoid risks, they rarely invest in start-up organizations. They mostly deal with products that can have increased sales in a short time. Look out for venture capital opportunities to grow your business.
Venture capital investments provide an equal stake to investors, and investment returns depend on profit margins and business growth.
How Does Venture Capital Work?
Conditional loans are repayable in royalty after the capital makes revenue. Also, they have no interest. Royalty rates may range from 2% to 15%, depending on various factors, including cash flow tendencies and external risk.
Equity financing is also beneficial if a company needs more time to grow. In such a case, the investor contributes 49% or less of the whole stake, leaving the entrepreneur with ultimate power.
Participating debentures have interests that are payable at three different rates: start-up, initial operations, and after a certain level of operations phases.
Income notes combine traditional and conditional loans, where the venture capital organizations pay both interest and royalty at minimum rates.
5. Go to the Bank
Before you borrow money from the bank, prepare your financial statements to show how you will generate profit, and pay them back. Your chances of getting a bank loan increase if your business is already making money.
If it is a home equity loan, you can put up your property as collateral.
6. Friends and Family
You can borrow money from your family members and friends. It is easier because you don’t need a lot of convincing to get your business funding. Ensure that they understand the risk before they invest, not to ruin relationships if the business fails. Although people advise against it, it can help you boost your business.
7. Other Lenders
Some microlenders provide small business loans with higher interest rates. Small businesses borrow money against their account’s receivables. Whether your business benefits or not, you will need to pay back the lender at the agreed-upon time.
Finally, if you own a business and need money to grow it, borrow from reliable sources such as angel investors, banks, and small business associations. Be sure to do thorough research before requesting funds. For more information about sources of business funds, do not hesitate to contact us.