Many entrepreneurs looking to commence a business get perplexed on the best source of funding to seek for their startup. With the many options there are, culling the ideal source of financing can be an inundating process; however, weighing the pros and cons of each source will avail you optate the ideal one to go ahead with. Listed below are some prevalent funding sources, with a concise explication of each that will avail simplify things for you :
This is the most appealing source of financing, because you use your own money to jumpstart your business and don’t owe anyone else in the process.
• You have total control of your business, and you may do as you gratify with your money.
• There’s this gratification that you are utilizing your own cash to fund the business.
• If the business fails, all the hard earned money that you had put into your savings will go to waste.
• You may miss out on otherwise valuable guidance and mentorship from angel investors and venture capitalists.
2. FAMILY & FRIENDS
This type of funding has more to do with the relationship itself, rather than the assessment of a feasible business plan. The aim of this type of funding is to avail kick off a business to a point where it can seek and get other types of funding.
• More expeditious funding process and flexible payment methods.
• Family and friends provide the funding without assessing the viability of a business plan itself.
• Brings nothing to the table except for the initial capital investment.
3. CROWD FUNDING
This involves funding a business by taking scintillas of capital from an immensely colossal number of people, customarily via the cyber world. This type of funding makes utilization of the prodigious networks you’ve of your friends, family and colleagues via different gregarious platforms to get the word out about the business, with the goal of magnetizing incipient investors.
• Has the potential of expanding a business by getting a pool of investors who can avail raise money.
• Requires time and dedication before results may be realized.
• CROWD FUNDING IS IILEGAL IN INDIA
4. ANGEL INVESTORS
Angel investors are affluent individuals who will provide funding in exchange for a portion of equity in the business. Some investors work in groups and screen deals together before providing funds, while most work on their own.
• Angel investors can offer valuable advice and guidance since they have experience in the industry you’re in.
• Flexible business terms.
• You may be coerced to give up control of your business to some extent.
5. VENTURE CAPITAL
Venture capitalists are investors who put in a considerable amount of funds in exchange for equity in the business, and get returns when the business goes public or is acquired by another company. Venture capitalists are all about the money, and only invest in businesses that have the potential of providing good returns on their investment
• Venture capitalists not only provide funding, but can offer expertise and mentorship to avail develop the business.
• Venture capital funding gives the business immediate credibility and opens other doors to a wide network of consequential individuals, such as future investors and partners.
• You may be coerced to give up an immensely colossal chunk of your business due to the consequential amount of funding provided.
6. BANK LOANS
Bank loans are a popular source of funding for many startups. Afore applying for a bank loan, it’s consequential to ascertain that you are well edified about the sundry options available, and the interest rates that come with each option. Pros:
• There are different funding options depending on your desiderata.
• The funding process is relatively expeditious if you qualify.
• You don’t have to give up control of your business.
• Requires a plethora of documentation, which can be tiring and time-consuming.
• You require inculcate yourself about the best option available for you; otherwise, you might end up culling a deal that will eventually hurt your business.
• The money has to be paid back whether the business prospers or not, failing which may lead to loss of your assets, if any.
7. SMALL BUSINESS ADMINISTARTION (SBA) LOANS:
This involves funding from a regime administration devoted to availing minute businesses to prosper. SBA’s avail minute businesses get capital and ascertains that a certain percentage of contracts are awarded to the diminutive businesses. Pros:
• Avails amend the relationship between lenders and borrowers.
• Incremented chances of obtaining a bank loan if the SBA loan is felicitously managed.
• Stringent qualification guidelines.
To avail the ideal funding source for your business, ascertain to review your financial needs, qualifications, and the exigency of financing. Some funding sources need certain requisites to be consummated for you to qualify. It’s thus consequential to ascertain you are well inculcated on the sundry options available to you, and their respective advantages and disadvantages.