Funding is a natural part of the life cycle of any business, whether it is at startup, growth, updating equipment and processes, or even getting through a rough patch with limited impact on production. As a business owner, you may find yourself seeking financial support to grow, weather a difficult period, or for some other important reason. But where do you start?
Here is a high-level view of some common ways to get funding for business startup, operation, and growth:
Self-funding is an attractive option for entrepreneurs who have access to credit cards or can take out a second mortgage, tap into their own savings or personal debt, or sell assets to raise the cash they need. This option keeps the control squarely in the hands of the owner, and if it incurs debt, it is personal, not necessarily attached to the business. This strategy can present some obstacles, however. If at some point you begin looking at business expansion, your company may not have the appropriate credit history that would impress lenders.
Once the business is operational and growing, it can reach the point where it generates enough cash to fund its own growth, expansion, or franchise opportunities. In fact, this type of funding, known as bootstrapping, is how many entrepreneurs start. Sometimes the term is used to describe self-funding as well. Ultimately, bootstrapping describes building a business from whatever resources you have available (which may be very little).
One of the riskier funding methods is to reach out to family and friends as sources. Many financial experts warn against this method simply because businesses can fail, and things can happen that impact your ability to repay these debts, which can result in ruined friendships, hurt feelings, and very awkward family gatherings. Before you accept funding from relatives or friends as investors, be sure they understand the risks. Even then, give it very careful consideration before you agree.
Sometimes it’s just better business to go with investors. Certain types of start-ups or business acquisition opportunities are better suited for investor-based funding. Venture capital is one such option that can provide a solid financial foundation, but it comes with a price. Large-scale funding at the early stages of the business is generally provided by firms. However, they are usually only interested in larger investments, and for the funding they provide, they assume a significant share (usually controlling interest) of the company.
Angel investors are an attractive option for some businesses. These are usually individuals (or sometimes investment groups) who are looking to invest in businesses and have the money to make it happen. You can find information on angel investors by contacting your local chamber of commerce or by seeking out local angels who are interested in investing in your type of business.
Crowdfunding is a fairly new approach to getting funding for a business, but it is quickly becoming a popular way to open doors for entrepreneurs who may not otherwise have access to the financial resources to start and operate a business. Essentially, the process is completed through a crowdfunding website where a number of people are able to contribute to projects they believe in. They may invest $5 to $10, $500, or even thousands of dollars. The beauty of this type of investing is that it is accessible to everyone on both sides of the fence.
If you do not mind taking on a partner, that may be a good way to build your business. A partner will usually bring certain things to the table, either money or assets or both. There is a lot to work out, though, because you are basically sharing the business in most cases, so you do not typically have autonomy when it comes to business decisions. Plus, a partner buyout can be costly.
If you are in a position to seek funding through a lender, it can be the easiest and least risky option in terms of relationships and stability. The Small Business Administration (SBA) has a number of programs for businesses, including the SBA loan. They can have some stringent requirements regarding guaranteed repayment, although they may be a nice option for projects like auto financing for building your fleet.
Small business lenders are another option for providing small business loans. These are organizations that provide loans to small businesses and operate much the same way banks do, but are usually short term, with easier requirements. They may also be easier to obtain in most cases, which is good news for entrepreneurs who cannot get or do not want a bank loan. However, these lenders may require you to use your assets to secure a loan, and rates can be high, depending on your risk as a borrower.
A bank loan is probably the most traditional way of funding a small business. This is usually a good option for businesses that have been operating for a while and have an established history of success and growth. Entrepreneurs with a proven track record may also have a better chance of obtaining this type of loan. Like many other types of lenders, they will usually want to secure loans with assets. However, bank loans can also be used to create a line of credit for businesses, which can be beneficial for existing companies.
Know Your Options
When you are looking for ways to get funding for your business, your options may seem daunting. Why not put the work into the hands of the lenders who are interested in your venture? Fill out a loan request through our search engine for loans and, if qualified, receive multiple lender proposals within just a couple of hours.
Throughout this process, it is easy to reach a point at which your personal information is in the hands of literally dozens of strangers. It does not have to be that way. At Magilla Loans, we think your private information should stay private, and the only people to see it are the ones who can truly help you. Get started today and see how to get the funds you need for business while keeping your personal information personal.