Undoubtedly the biggest challenge ahead of any small business is the fact that they need sufficient funding in order to get off the ground. In some cases, this doesn’t have to be huge amounts, but any investment at this stage poses a risk. Very few new business owners are able to afford setting up on their own, which is why funding is always something that is necessary. Existing businesses have access to options like litigation funding and lines of credit, but this is not the same for new businesses.
In fact, contrary to what many people think, there are in fact a wide variety of sources where funding can come from for a new business, and here are just some examples.
An angel investor or a venture capitalist can help new businesses within emerging sectors to secure the funding that they need. Usually, the are looking for startups in industries such as tech, pharma and environmental sustainability. In this particular case a VC or angel investor will look to take shares that equal just under half the value of the company. This can be excellent for startups as they can secure the funds they need and use the expertise and knowledge of the investor to catapult themselves to success.
Equipment financing is used specifically for the purchase of the equipment that the business needs to get off the ground. This money is never used for marketing or for hiring staff, or anything which falls outside of the equipment in the business. This is a positive move as it frees up liquidity which may have been used for equipment, and it also gives companies the chance to take on credit in the future from other sources.
Business Bank Loan
Getting a loan from the bank is still one of the most common ways of securing funding for a new business. Many like this option because the rates are reasonable, the terms are positive and banks have great experience in financing young businesses. It is of course in the best interests of the bank that the company to whom they have loaned the money to does well. Owing to this they will dedicate a business manager of the company to offer advice and help with certain aspects of the business in the early months.
One of the best options, if it is at all possible, is what is known as ‘Love Money’. This is essentially a loan from family and friends which can help the business to get started. Naturally this involves a lot of trust and should always be done officially in order to offer maximum protection. There is always a risk when loaning money between friends and family, and that is why it has to be done in the right way. The clear benefits of this of course are that the person borrowing money will pay either less interest or zero interest on the loan, and that there will be slightly less pressure on paying it back.
These are the most commonly used options when it comes to getting funding for business.