How to Decide the Best Way to Fund Your Business

No matter what kind of business you’re starting, what your growth model is, or what kind of team you’re starting with, you’re going to need money to get started. These days, it’s possible to launch a startup on a razor-thin budget, working remotely so you don’t have to pay for an office, scraping together resources you already have, and working with the smallest team possible. Even then, you’ll need thousands, if not tens of thousands of dollars to get what you need to build early momentum.

Fortunately, there are dozens of different ways you can fund your business. But this presents a problem of its own. With so many possibilities and all of them have strengths and weaknesses worth considering, how do you ultimately decide the “best” way to fund your business?

Funding Options for Your Business

You can start by charting out some of the most common and popular ways to fund a business.

These include:

Venture capital.

Among the most well-known options for startup entrepreneurs is working with a venture capitalist (VC). VCs can be people or companies, devoted to investing in small businesses. VCs generally get a lot of available funds, which makes them a perfect choice if you’re searching for a huge injection of money — they agent smaller prices too.

In most cases, the VC provides financing in exchange for equity in the business, forcing one to discuss gains in the future and/or forfeit some amount of management. Furthermore, VCs can be particularly aggressive, which makes it tough to stick out in the contest.

Angel investors.

An angel investor is a person (and normally a wealthy one) who’s ready to invest in tiny businesses. Angel investors are not as devoted to the clinic as VCs, so there is generally less competition for their attention. But they could be more difficult to find, based on your geographical area.

However, angel investors operate similar to VCs, offering promising young partnerships with cash in exchange for partial equity or some command in the company. Some angel investors also function in a mentoring capacity, providing guidance and direction to developing young entrepreneurs.

Crowdfunding

Crowdfunding is yet another popular alternative — and yet one which was not available 15 decades back. The idea here would be to entice tiny amounts of funds from a high number of micro-investors, instead of working with a single wealthy individual or big company. This distributed model frequently makes it a lot easier to find the funds that you want, however, there are a few logistical hurdles.

For starters, crowdfunding is limited; you might find it challenging to pursue equity crowdfunding, and a few popular crowdfunding platforms are specific about the sorts of jobs they sponsor. You will also have to believe carefully about the way you advertise your company; your placement will play a huge part in if contributors opt to contribute to your enterprise. You could also be beholden to your own investors somehow, responsible for fulfilling a guarantee with the cash that you’ve received.

Personal funding.

Private financing. If you prefer the notion of becoming more independent, it is possible to try to finance the company yourself. If you have accumulated wealth through time, this might be a straightforward clinic. Otherwise, you should become creative to summon the cash required to receive your business going. By way of instance, you can sell a significant advantage (such as a house) and utilize the profits to start your own startup.

Grants and loans.

Occasionally, you can finance a company with the support of loans and grants. Resources like the Small Business Administration and local Chambers of Commerce will help connect you with specific programs intended to incentivize company development.

In addition to this, you can use your lender to reassess loan choices, and possibly open a floating line of credit you’ll be able to tap into as you continue to help your company grow. Obviously, the drawback here is that lots of loans require payment with interest, and when your credit is not robust or when you borrow a lot, it may become a burden.

Special loans.

Depending upon your individual conditions, you may be eligible for particular forms of loans that may supply you with capital instantly — rather than ask you to pay attention for a while. By way of instance, if you are in the center of a personal injury claim, you might be entitled to pre-settlement legal financing, which may provide you capital immediately you won’t need to pay back straight away. Take advantage of these profits carefully if you opt to go on this course.

Partnerships.

You might also opt to finance your organization with the assistance of a partnership. Hiring a company partner with more cash to put in the business might be precisely the money injection you will need to produce the startup work. Obviously, that also means you ought to feel comfortable using a spouse within the long-term evolution of your business.

Determining Your Priorities

Clearly, each of these options has something going for it – and many of them have significant drawbacks that weaken them. So how are you supposed to make the decision?

• Capital requirements. First, design the funding requirements of your business enterprise? This can look like an obvious question, however, also many entrepreneurs enter this distance with just a vague notion about what they really need. Spend some time creating a business strategy and pulling out the fiscal model. Be ready to ask just for the financing you want.
• The desire for control. How much control do you want to retain over your business? Would you be okay with heeding the direction of investors? How much power are you willing to forfeit to get the funding you need?
• Type of business. What kind of business are you hoping to start? Is there a flexible approach that can help you get access to more options? For example, can you start as a local company before expanding nationally to reduce your initial capital requirements?
• Personal savings. How much do you currently have available in personal savings? Are you capable of funding this business independently, or are you totally relying on external sources of funding? How much would it take to close the gap?
• Risk tolerance. Consider your personal and business risk tolerance. Do you have a backup plan in place? What would happen if things go wrong?
• Hybrid options. There are usually few restrictions on the number of funding methods you can pursue simultaneously. If you want to compensate for the weaknesses of one funding method, consider simply supplementing it with another, complementary method.

Getting Started

If you’re just getting started and you’re need help making this decision, these are the most important steps you should take:

• Develop your business plan. Take the time to write your business plan and pay especially close attention to the financial section. Here, you’ll be able to calculate exactly how much funding you need, what your risk tolerance is, and more.
• Play with your options. Spend some time evaluating your options. Consider the primary sources of funding available to you and how they might affect the management and future growth of your business. Compare these hypothetical situations to each other and see if one stands out above the rest.
• Network. Finally, spend time professional networking. Building your network is never a bad thing, and it can introduce you to many potential partners and investors. If nothing else, you’ll meet peer entrepreneurs and business owners who can share their experiences and give you a perspective on the world of funding.

Picking a style of financing to your company is among the most trying and impactful decisions you will make as a new entrepreneur. But if you put time into this decision and take it seriously, it might help encourage your startup’s expansion for many years to come.