Raise funds for your business is an important and often overlooked aspect of starting a successful venture. The list of funding options for your business can be overwhelming; however, by being aware of your different funding options and how they work with your spending plan, you’ll be able to navigate this process more easily.
Equity funding is a type of funding in which the investor gets a stake in the company. It’s also known as venture capital, although that term can also be used for other types of equity financing. Equity financing usually comes from venture capitalists (VCs), angel investors, and angel networks.
Debt funding includes loans from financial institutions, banks, and credit unions. Debt funding also includes lines of credit and mortgages. Debt financing is a great way for businesses to obtain the capital they require to expand their business or make capital investments, like purchasing equipment or investing in new facilities.
However, debt comes with certain risks that equity investments do not. Interest rates can change over time; lenders may suddenly become unavailable due to market conditions; borrowers can default on their payments if they are unable to meet them.
Crowdfunding allows you to raise money for your project by requesting pledges or donations from the public. Crowdfunding has many benefits, including:
- It’s accessible to anyone with an internet connection, so long as you can find a crowdfunding platform that fits the type of project you’re working on.
- The process allows users to spread awareness about their projects by using social media tools such as Facebook, Twitter, Instagram, and YouTube videos. This can help them secure more funding than they might have otherwise because it creates goodwill among potential backers through online word-of-mouth marketing campaigns.
Bank loans or loans from financial institutions
Bank loans and loans from financial institutions are common sources of funding for small businesses.
- A bank loan is usually secured against collateral, such as the company’s assets or property, or it may be unsecured.
- Loans from financial institutions can be unsecured, but they’re usually more expensive than other sources of funds because they’re considered riskier by lenders. These loans may require a personal guarantee from an individual who signs the loan agreement on behalf of the business.
Venture Capitalists, Angels, and Angel Networks
Venture capitalists (VCs) are experienced investors who provide funding for startups. They may be able to offer advice on strategy and operations, but they’re not usually involved in day-to-day operations.
VCs usually invest large sums of money over a long period of time (10+ years) with the expectation that their initial investment will lead to significant returns once the business grows. Some VC firms specialize by industry or geography, while others invest across a wide variety of industries and geographies.
The main lesson is that your company can get to raise funds from a variety of sources. The most important thing is to be clear on what you need and have a game plan in place to get it. Don’t let yourself get caught up in details or lose track of your vision when considering how much money you need or where it will come from.
Suppose you want more information about funding options and other topics related to starting up a business. In that case, plenty of resources are available online, with articles written by experts who have been through similar journeys themselves.