Finding money can be one of the biggest obstacles for a small business owner. Whether you want to open a chain restaurant or an internet-only business, capital is required to finance your dreams. Here we will explore the different types of financing available to you:
Financial debt includes any money you will pay back. It does not require you to give up shares in your company and can be a good option for entrepreneurs who have been unable to attract investor attention. This type of financing generally requires a personal guarantee and will require you to pay interest.
- Loans: Loans are available from a variety of sources, including local banks, the Small Business Administration, and non-profit organizations. Requirements vary, but are generally based on credit and will require you to pay interest. Some microloans from economic development organizations may also take character into account.
equity financing it requires you to give up a portion of your property to investors in exchange for their money.
- Friends and Family: For most business owners, this is the first stop when looking for financing. Your friends and family know your character, and the process of obtaining money is usually much shorter than other methods. Even better, most won’t ask for a stake in your business in exchange for financing. Even if you know these lenders personally, be sure to get all agreements in writing.
- Angel Investors: High-value individuals or groups of people who exchange industry expertise for a share of your company’s capital. These investors can be hard to find and some only focus on certain sectors. An Internet search can uncover angel investors in your industry.
- Venture capitalists: These companies are generally interested in established companies or startups that will quickly be ready for sale or public offering. There are usually high standards for receiving this type of funding and you must be willing to relinquish some control.
Other types of financing:
- Business Plan Contests – Many are hosted by local business schools and require you to partner with at least one student to enter the contest. Winning could mean networking opportunities, funding, and ongoing support.
- Government Grants – Although it’s a popular belief that the federal government provides grants to small businesses—money that you don’t have to pay back—it’s not entirely true. Most of the grants go to local nonprofit organizations that help start-ups rather than the businesses themselves. However, some states provide grants for special industries, such as technology and “green” sectors. Check your state’s requirements for more information.
As you can see, there are a variety of ways to obtain financing for your start-up. An accountant or financial manager can help you decide what type of financing would be best for you. For more information on business financing, including sample IOUs that can be used for loans to family and friends, visit SCORE: http://www.score.org.
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This article, by Dequiana Brooks, originally appeared in Gemini Magazine.