Ask any would-be entrepreneur what the most difficult phase of starting a new business is and their likely answer would be funding. After all, not every entrepreneur has access to sufficient startup capital. Very often, you have to rely on other sources to get funding for your business.
Here’s a look at these sources and what you can expect from each.
Self-financing is a no-brainer for many business owners. If you have the resources, simply get funding for your business from your own pocket. The advantage is that you can do whatever you need to do with the funding you have and have absolute control. On the downside, you are entirely responsible for everything should the business fail.
Family and Friends
Your nearest and dearest are the most probable source for you to get funding for your business. Family and friends have traditionally offered much-needed financial support as startup capital or additional funding. They are often an excellent source of funding because they can offer very good terms. Some may even provide the funding as a grant, allowing you to use the fund for your business without paying them back. Others, however, may prefer to invest in the business as equity owners.
Thanks to the Internet, crowdfunding has helped create numerous opportunities for entrepreneurs to start and grow their business. In this model, an entrepreneur invites a pool of small business investors to help fund the business. This is often an option for startup businesses looking for capital but cannot get funding or do not qualify for loans. Many entrepreneurs prefer crowdfunding because there are very few stringent requirements they have to meet.
Angel investors are individuals or a group of individuals who have the means to provide financial support to a business using their own resources. Angel investors typically come in when the business has already started and is ready to expand or move forward to the next level. In exchange for funding, angel investors will require the entrepreneur to pay back the fund or offer ownership equity. Most angel investors offer at least $25,000 additional capital, although others may offer a much higher amount.
If you are considering finding support from an angel investor, be prepared. They typically require you to present a business plan to prove the viability of your business once they decide to take part in it.
Small Business Administration Loans
Created in 1953, SBAs offer a number of programs that guarantee loans from qualified sources, such as credit unions, non-profit lenders, and banks. Certain types of loans, such as the 7(a) Loan Program, is very popular among small businesses and have been useful for new businesses and for expanding old ones. Some restrictions apply, however, and interest rates will depend on a number of factors, such as the lender, the loan amount, and your credit history.
Venture capital companies offer direct investments to small businesses in return for equity stakes. As such, they choose their business partners carefully and will work only with established businesses that have proven profitability.
Are You Ready for the Next Phase?
If you feel it’s time for your business to expand, iAdvance Now can be of help. We offer solid financial advice to business owners to ensure that they have the proper information to bring their business forward. If you are ready to make the next step, iAdvanceNow can help point you in the right direction.