Executive Chronicles| Funding Options You Should Consider for Your Business |Starting and running a business requires a ready supply of cash and a lot of hard work. This is what makes funding one of the biggest challenges for many companies. However, you may not realize that there are many avenues for securing financing for your business. Not all business funding options are ideal – some will cost you more than they will help. Here is an overview of four user-friendly funding options ideal for your business.
Bootstrapping entails funding your business using your finances. It is an excellent funding option credited for the rise of some of the world’s biggest companies, including Facebook, Dell, and Apple. The main benefit of bootstrapping is that you will not have to come to a sharing compromise with another person or party (creditors and investors). This means that you will be in full control of your business and will take all the profits. This funding option also has its shortcomings. For starters, while bootstrapping may be a readily-available option, it may not always be sufficient. This option mostly works for companies that don’t need a lot of capital to start and run. For example, it worked for Facebook because it was conceptualized online on a free platform. The limited funding options will also slow your business’s growth. Finally, it is always advisable to separate personal and business finances.
Crowdfunding is not a new concept, but it has become increasingly popular and impressively effective over the recent past. It mainly entails getting people to help fund your business (or any other cause, for that matter). Your crowdfunding campaign can target family members, close friends, and even strangers. All you have to do is convince your audience that your business idea is exceptional and give them a reason to donate. One of the best things about crowdfunding is that it doesn’t have any fees attached – you don’t need to repay it. Crowdfunding is also easy nowadays, thanks to the rise of public online crowdfunding platforms, such as Indiegogo. Crowdfunding is not free and you will need to market your brand and the campaign. What’s more, this option is ideal for businesses that don’t require significant capital. It would be best if you also were careful not to expose your business idea during the campaign as other people can steal and exploit it.
Loans from commercial lenders make up the primary source of funding for most businesses. The main reason why loans are preferable is their substantial funding capacities. While crowdfunding and other funding mentioned above options are limited to less than $100,000, lenders can loan out millions of dollars as long as they stand to profit from it. However, loans have to be paid back within the stipulated time and with the attached interests. There are various types of loans available to businesses, including personal loans. The two primary sources of business loans are banks (and other traditional financial institutions) and private lenders. Loans also come with varying regulations and stipulations.
A loan will cost you, so be prudent when making the decision. Look for a lender with favorable terms, including a low-interest rate, flexible repayment period, and an easy and quick application process. Experts also recommend setting up a special purpose vehicle to handle your debts.
Venture Capitalism & Angel Investors
The famous TV show, Shark Tank, is an ideal example of how venture capitalism works. The idea is to convince wealthy investors that your business idea is exceptional and worth investing in. Numbers matter the most here as the potential investors will be looking to see your business’s possible ROI (returns on investment). The investors also consider other statistics, including startup and operating costs. They then use this data to determine how much to invest in your idea.
On the other hand, angel investors are other successful business owners who sympathize with your plight due to their past experiences. The concept is the same – you have to convince the angel investors that your business idea is worth investing in. You can secure a substantial amount from venture capitalists and angel investors, depending on your business idea’s value. However, your investors will want a share of the business in the form of equity.
Funding will provide your business with a stepping stone to finding its footing and growth. However, funding also comes with strings attached, as explained. As such, be prudent when picking your available funding options.
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