Commencing a business can be galvanizing. A new business represents an opportunity for growth and profitability. But as exciting as it is, starting a business is excruciatingly expensive. To ensure that your company checks the box of success, you need to be careful about how will collect the required capital for business. Business funding is a tricky and complex process, and you do need every possible opportunity laid out to strike the right deal.
This article may help you realize the meaning and opportunities available to fund your business.
Starting with,
Determining How Much Business Funding Would You Need
The first step in the fund collection process is to understand approximately how much business funding would your startup need.
Every startup business has different needs, and no financial solution goes one-size-fits-all. The monetary situation and vision of the venture will shape its future.
Remember that when you’re financing a business, there are never enough monetary sources. So, always stay a step ahead with the right strategy. Once you know how much startup funding you exactly need, it will now be time to figure out how you’re going to get it.
Self-Funding Your Business
Self-funding, aka bootstrapping, allows you to leverage your finances to support your company. You may choose to self-fund by turning to your family or friends for capital, or by tapping into your savings accounts, or even your 401(k).
Self-funding helps you retain supreme control over your business, but you also take on all the risks yourself. Be careful not to give out more than you can afford, and be especially careful if you choose to tap into retirement plans early. You might face expensive penalties, or compromise your ability to retire on time — so you must check with your plan’s administrator and a personal financial advisor first.
Collecting Venture Capitals from Trusted Investors
Interested investors can give you funds to start your business in the form of venture capital investments. Venture capital is offered in exchange for an ownership share and active role in the business verdicts.
Venture capital differs from traditional financing in numerous essential ways. Venture capital basically:
- Focuses high-growth companies
- Possess a more protracted acquisition horizon than conventional financing
- Invests finances in retrieval for equity rather than debt
- Takes loftier risks in exchange for potentially higher returns
Almost all venture capitalists want a hand on one of those seats on the board of directors. So you have to be prepared to give up some of your control and ownership of your company to get proper business funding.
Crowdfunding
Crowdfunding is a kind of business funding strategy that raises funds from a pool of people, also known as crowd funders. These crowd funders are not technically investors, as they do not receive the share of ownership in the business and do not expect a financial return on their invested amount.
Instead, they receive a “gift” from your company thanking them for their contribution.
You will usually give this gift in the form of the product you plan to sell or other special benefits, such as meeting the business owner or getting their name in the credits. Consequently, crowdfunding is a popular option for people who want to produce creative works (such as a documentary) or physical products (such as a high-tech cooler).
Small Business Loans
If you prefer retaining complete control of your business funding process, but do not have enough funds for bootstrapping, you may consider a small business loan.
To increase your chances of securing a loan, you should prepare a business plan, expense sheet, and financial projections for the next five years. Different tools can help you determine how much of a loan you need to obtain, and they will make the bank feel confident they’re making the right decision by lending you the money.
Once you have your materials and documents ready, you need to contact banks and credit unions to request a loan. You’ll want to compare offers to get the best possible terms for your loan, given all the exceptions.
SBA and Its Various Programs
Small Business Association, or SBA loans, are small-business loans with a portion of the loan guarantee provided by the Small Business Administration. They are provided typically by banks and other lenders who participate in the guarantee. The SBA has stringent lending standards, but because of its flexible terms and low-interest rates, it can offer businesses the best financing options.
Here listed are the programs created by the SBA to ease up your business funding process.
1. Small Business Investment Company (SBIC)
SBICs are privately owned and managed investment funds licensed and run by the SBA. They use their capital, plus funds borrowed from an SBA trustee, to make equity and debt investments in qualifying small businesses.
2. Small Business Innovation Research (SBIR) Program
SBIR backs up and supports small businesses to engage in federal research and development that has the potential for commercialization.
3. Small Business Technology Transfer (STTR) Program
This program offers business funding opportunities in the federal innovation research and development arena. Small businesses who qualify for STTR work with non-profit research institutions in the early and intermediate stages of starting up.
Statistics Checkpoint
The SBA’s published statistics from 2015 break down the approval rates along with gender, ethnicity, and location lines: 29% approval for all minority-owned businesses versus 57% white-owned, 71% for male-owned businesses versus 29% female-owned, 67% existing businesses versus 33% new business, and 17% rural companies versus 83% urban.
Bonus statistic: In 2015, the average SBA 7(a) loan size was $371,628.
Bottom-Line
Business funding is a hectic task. There is no possibility of everything sailing smoothly as a paper boat. And while there’s nothing that can make your funding voyage perfect, the team at Daveron Networking Services can help your business ship avoid bumping into icebergs and pirates that will drain you off of your money.
Ready to grow your business? Speak to our growth experts and learn how to expand your customer base, drive revenue growth, and optimize your business operations.
