At one point in the life of a business, there is usually a need for most business owners to source new funding to help the business grow or scale through the hurdles of hardship.
So when it comes to this, getting the right funding to boost the business is usually very hard.
In this article today, we will talk about how to overcome this, and also the best ways to get funding for your business giving your different business funding options to think about and choosing the right one for your business.
There are two ways of funding a business which is through:
- Debt – When you acquire funding through this method, the investor gets a note for the cash he/she is bringing in, what this note simply contain is the terms of loan repayment, how long the loan will be for, and also the interest that comes out of the loan. One of the benefits of this funding method is that you retain the ownership of your business in totality, but the disadvantage is that you have an obligation, which is to repay the load as well as fulfill other terms of the loan. If you fail as a business to meet these requirements, the business/company can be forced into liquidation.
- Equity – In the case of equity, this method of funding allows the owner of the business to give out some ownership of the company to investors in form of a stake in exchange for the funding they are providing. With this method, you as the business owner do not have any repayment to do or interest, However, the disadvantage of this method is that you have given away your total control of the business, even though its usually a little part of it, some of it can lead to total loss of the company.
Now that we understand the difference between these two considering their merits and demerits, let’s take a look at various sources of funding through equity and Debt funding.
Bootstrapping – What bootstrapping means in business is simply a process where the business funds itself. As the business continues to grow, the business will have the capability of growing itself.
Self-funding — This happens very often, especially in the early stage of setting up a business, this is the funding method where the business owner funds the business with their own money. This could be either with long-term savings or personal debt. Some entrepreneurs even go as hard as selling some of their assets to generate cash to fund the business.
Friends and family – Friends and family are a good source of funding especially when you are starting a new business, this can be either through equity or debt, however, it’s advisable to keep this kind of funding as debt funding instead of equity to this group. For several reasons, businesses can fail, and when this happens this could hurt those in these groups especially running friendships and making family meetings unpleasant. But whatever case it is, always ensure the investors know about business risks.
Angel investors – These set of people are known to be investors in their dealings, they understand business, and business risks, and are always willing to invest in businesses. Angel investors usually are in groups and they do this to spread risk and also manage to fund. Feel free to get in touch with us to know which agent investors are available to fund your new venture.
Partners – Finding a business partner is another way to source funds. Getting a partner doesn’t necessarily mean the person will be an employee or work directly in the company. Some partnerships are strategic – and this could be solely for resource merging.
Venture capital – Similar to Angel investors, venture capital are firms – that provide early-stage funding, but in this case, they are usually interested in taking a large share of the company which is usually termed as Controlling interest.
Crowdfunding – This method is simply an avenue created by the individuals with business ideas or projects to engage thousands of potential investors to crowdfund. This type of funding can be debt, equity, or rewards-based.
Banks – When it comes to business loans, banks have always been the frontrunner – and this is because they have enough cash at their disposal which needs to be put to use. As a business owner, you can approach a bank for funding, but you should know that bank takes note of the business/owner’s financial track record this type of funding is usually tied to assets by the bank to ensure the loan can be repaid.
Small business lenders – Apart from Banks, many organizations offer small business loans. What happens in this case, is that business lenders loan our cash to business owners securing the loan with some assets and also request for interest at the end of the loan tenure. The downside of this is that the interest rates are usually high.
There are many more options when it comes to funding a business idea or an already established business. To ensure you get the right funding for your business you can check out our financial advisory section where we offer business advisory for startups and businesses on the right path to take to boost their businesses.