Options for small business funding
It takes money to open a business. Until you start making a profit you will need to finance your operation and growth with start-up capital. Let’s talk about options for small business funding.
Bootstrapping is when you are able to start a business without external help or capital. You may have your own money or perhaps a family member is lending you money.
This works well if you already know about the type of business you are starting because you will not have to hire people with a certain skill set. You will need to stay within a budget, you may not be able to get everything you wish but you will have enough to start.
Monthly subscription plans and social media marketing can help provide your business with income and help keep out of pocket costs down.
Many founders will need capitol to get their business started.
If you’re looking for a relatively small amount of money, then Seed financing might be for you.
Seed-round financing allows one to invest in your company in exchange for preferred stock. If your company gets sold or liquidated, then investors who hold preferred stock often have the right to get their investment back. Usually they get an additional return referred to as “preferred dividends”.
Accelerators usually require applying and competing against other startups in a public pitch event. You may see these at local Universities and Launch pads throughout the country.
Accelerators were used by Airbnb, Twitch, Stripe, Dropbox, Twilio, Simple, Pluto TV and ClassPass.
These accelerator programs usually involve mentorship to help your business grow.
Search accelerator programs to find one by you.
Small Business Loan
If you have a Business plan then you may want to see if you are are able to get a business loans.
The Small Business Association provides loans for small businesses.
Microloans can be used if you are declined from the SBA. Microlenders typically are more flexible than commercial banks which don’t typically lend to business without a proven track record of at least 2-3 years.
Peer to peer loans
Peer to peer loans are also another option. Keep in mind that these loans are typically unregulated.
Crowdfunding is a newer way of funding a business. Crowdfunding is a method of raising capital through the collective effort of friends, customers, and individual investors.It allows a business to get funding from potential fans and customers who want to support the business idea.
In return fans may get access the initial products.
There are different types of crowdfunding such as donation based, rewards based and equity based. We will talk about those in another post.
If you’re looking for a significant amount of money to start your company then venture capital financing is probably the right move for you.
Venture capital financing allows venture capital firms to make investments into your company. There are two key elements within a venture capital fund which include general and limited partners.
The general partners are the people in charge of making investment decisions. They work with startups to grow their companies.
Limited partners provide the capital necessary to complete those investments.
Different types of venture capitalist
“Seed stage” venture investors help get a company off the ground.
“Early stage” venture investors focus on taking a company that has successfully proven its concept. Venture capitalists will usually help the business accelerate sales and marketing efforts.
“Growth stage” venture investors helps the company to grow.
As you can see there are a number of different ways to fund your small business.
This is just a brief overview but it is important to know about the different types of small business funding.