Are you looking for funding to start or expand your business? We will share some of the best strategies to achieve this depending on your specific situation.
Funding could be broken down into three main buckets which are credit, equity or grants. Of course you can use any combination of these to achieve your financing goals. Lets look at each of these in more details.
1. Credit – this approach is normally more appropriate as working capital for an existing company or financing for a retail type business that will generate revenue fairly fast. While you can use credit for developing a new product, the difficulty is that you would need to start paying the money back immediately, so you need to plan that out well. Of course if you have no other means to fund your business then this could be a way to get started or at least get things to a point where others may want to invest.
Credit can come as personal or directly off the business credit profile. People tend to shy away from personally guaranteeing loans in case the business fail it could hurt your personal credit. There are many providers out there that try to help you obtain credit through means such as shelf corporations with trade lines. Most of these schemes are mostly hit and miss, so no real surety of success. A very good means to get good terms on business loan is to investigate the SEC regulation D funding mechanism.
Another very good option for credit is to look for SBA backed loans especially if you are in the US. In this case, the SBA act as the guarantor for the loan which helps you to get more funding and even get advice to fine tune your business plan.
The one positive point about credit is that it does help you avoid the need to give up shares and equity in your business.
2. Equity – This is basically a funding means where you give up shares in your business for funding. The most basic form of equity funding is your own money and those of friends and family. The most advanced would be the use of Venture Capital investors. Whenever you pursue the equity route to funding, you need to consider the valuation of the business. The formula is [Valuation = Offer_amount/Offer_percentage]. This means that if you want $100,000.00 in equity investment and willing to give up 25% of the business for it, the value would be $400,000.00.
The best and simplest way for starting out and wanting venture funding is to check the SEC regulation D financing mechanism. The VC route is always there but its best to have the business at the certain point to get the best deal with venture capital funding. Another alternative for early equity funding would be Angel Investors.
3. Grants – A grant is basically free money given to your business. Most times grants can be obtained through government sources whether that is federal, state or local. They tend to focus funding on areas of interest such as new technology and the National Science Foundation (NSF) is one of the biggest grantor as they focus on advancing science in the US. The other source for grants would be private foundations that have specific interest and focus as a similar concept to what the government is doing.
The coolest and easiest way to get grants nowadays, is the concept of crowd funding. Sites such as kickstarter.com allows you to solicit money from ordinary people that basically likes your concept. This can be very helpful for new concepts where you have very little money on your own to get things to the next level. Bear in mind, there is no equity given in this case except that for larger amounts, you would promise the giver early access to the product. It’s basically like pre selling your product. Bear in mind you can use crowd funding for many needs.
Conclusion
Most business fail because of limited funding or cash flow issues. Its very important to get your funding under control as you progress through your business development. The above options are basic a snapshot of the tools available to fund your business. Find a trustworthy funding professional to guide you through this very important step in your business development.
