Funding is one of the cornerstones of business, and no, you will not be able to self-fund everything through revenue alone. Whether you are looking to start a business, expand it, or revamp it, money is key. Not only is self-funding not realistic in most cases, but it can actually be irresponsible. You need to have healthy reserves to tackle the everyday chaos a business goes through. Depleting everything you have is not wise and puts your business at risk.
Before you commit to anything, however, you will want to know your options and their consequences.
The Different Finance Options
Personal Funding
You should never take all of your savings to fund a new business. This is because if your new business fails, you will not have a financial safety net. Instead, use your savings to create cashflow that can cover your loan until you get on your feet.
SBA Loan
The Small Business Alliance offers loans for small startup businesses, but this can be a very long process. You will have to apply and waiting times can take up to six months (or even longer) before you hear a response. You will need a very strong proposal to back your case as well. The benefits, however, are a reasonable loan with a low-interest rate.
Small Business Loan
Before 2008 you were more likely to receive a loan from the bank for your new small business, but those days are long gone. The only way you might be able to acquire such a loan is because you have assets to cover it (like your home). Alternatively, this could also be because you have successfully managed a business beforehand and therefore have the business credit history they are looking for.
Short Term Loan
Short term loans can also be referred to as small business loans. The difference here is that they won’t be given to you by a bank. Considering most banks today will not give out any such loan to a business without the credit history to back it up, these short term loans are going to be your best friend.
Sites like Biz2Credit allow you to create an application in which they will review and provide you with a list of lending options. You can later return to your deal and renegotiate if necessary, or, if that doesn’t work, use your now established credit history to take out a better loan, often called a debt consolidation loan.
Business Angels or Venture Capitalists
Angel investors will have a personal interest in your company’s success, yes, but they will expect a 20 to 25% of the return. Generally speaking, angel investors are best for those just starting out, as they offer loans typically up to $300,000.
Venture capitalists will expect closer to 35% of return, but their investments go much higher, even over $10 million. They also will only likely invest in established businesses with a proven track record.
Research and Development Grants
If your business helps society or delves into research then there may be grants available. These will have to be applied for, yes, but as they are grants there will be no repayments necessary.
Explore all of your options when looking for funding for your business, and even consider diversifying where you get your money so that you can better manage costs and cashflow.
