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7 Key Business Funding Options and Advice

Photo of various stacks and rows of coins with FUNDING concept word imprinted on metal surface

In the US alone, there are 28 million small businesses which make up 99.7% of the business landscape.

Most of these enterprises are run by sole proprietors. Though there are risks involved in starting your own company, it can also be very rewarding.

Whether you have a great idea for a startup or already have your own business, there are high chances you are in need of financing.

In this article, we shall discuss some of the best business funding options and advice for young enterprises.

Savings

If you are just starting out, the first investment in your business should come from you.

Putting in your cash or assets will not only get you started but will also demonstrate your confidence and commitment to your idea to investors in the future.

If you are unemployed, you can tap into your 401(K) for the initial capital. If you follow the right procedure, you can avoid penalties thanks to provisions in the tax code.

Though the steps are easy to follow you may require assistance from someone experienced in setting up C corporations.

It is important to be very cautious when investing your retirement plans. If things do not work out, you will not only lose a business but also your safety net.

Family and Friends

As you are starting, your funding options will be limited. Your business does not have the credit record to access financing from banks.

Other investors might be afraid of investing in something that has no track record. However, you can leverage the personal relationships you have to raise capital.

Raising funds from family and friends is one of the most reliable methods of accessing capital.

Provided you are able to convince them of the viability of your idea, they will be keen to support you. Consider offering them equity in exchange for their capital investment.

Although they are people you already know, it is important to prepare a pitch complete with projections. Let them know when to expect their money back.

When doing business with family and friends, your relationship will be tested along the way. Therefore, you should be careful not to jeopardize it.

Bank Loans

In 2015 alone, nearly $600 billion was disbursed to small businesses in the form of loans.

Loans can really help grow a business. However, your enterprise must have good credit and an even better track record.

Ensure that you keep proper accounting records from the word go. To get a start-up loan, you will require a sound business plan.

You will also be required to give a personal guarantee.

Banks offer loan packages that are suitable for a range of clients. Ensure that the loan you take up suits the needs of your business. Bonsai Finance can help you get the most suitable loan for your business.

Go to a Business Incubator for Business Funding Options and Advice

Also known as business accelerators, these are facilities established to nurture young startups in the first months or years.

Businesses can access affordable space, shared office space, hands-on management training, marketing support, and access to financing.

Though most incubators are geared towards supporting enterprises in the technology or manufacturing space, there are those that are just focused on supporting businesses and job creation.

Other than the financial benefits you can get from incubators, they are the perfect place to learn the ropes of starting and growing a company. You will also get the opportunity to network with other like-minded individuals.

Angel Investors

These are high-value individuals who offer financial backing to startups. Generally, the funding acts as seed capital to get the business off the ground.

Many angel investors are retired company executives who want to invest in small businesses with potential.

Along with their money, angel investors also come with years of experience and a network of contacts.

For their investment, they also reserve a role in supervising the management practice of the company. Most of the time, this involves getting a seat at the board of directors.

Getting an angel investor is not easy as they do not openly advertise as such. However, there are platforms where entrepreneurs can put in funding requests accompanied by their business plan.

Venture Capitalists

These are investors that provide capital to companies that have a high growth potential in exchange for equity in the business.

They can fund startups or even established companies that want to expand but do not have access to the equity markets.

Venture capitalists have a high tolerance for risk and are perfect if your idea is untried and requires a huge capital injection.

However, your idea must have the potential to generate healthy returns for them to invest. When pitching to venture capitalists, you should be able to demonstrate the following:

• There is a big market for your product, and a lot of money is spent in that industry
• The unique aspect of your product or service
• That your management team has the capacity to deliver
• How your company fits their investment philosophy
• The metrics and evidence to back your claims
• How you will spend the money

Before you rush out to pitch your idea to venture capital firm, it is important to understand how they make their money, how exactly they can help you and the questions they may ask you.

Crowdfunding

This is a method of raising funds for your venture from many individuals willing to put in small amounts.

Crowdfunding has become popular in the past few years as the number of websites that allow nonprofits, musicians, artists, and even businesses to raise funds.

This method is not normally used for seeking funds to facilitate long term goals but for one-off projects. Normally the donations are traded for free products or even a chance to participate in design.

These days, some platforms even allow members to directly borrow from each other or invest in each other’s businesses on a royalty basis.

Why Should You Seek Funding for Your Business?

Many businesses are set up every day, unfortunately, only a few survive past the five-year mark. To increase your chances of survival, work with a trusted partner. A mentor can let you in on business funding options and advice.

Do not sit on your idea. Great things might be awaiting you. Get started today.

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