If your business has to continue growing, eventually, you will need access to more capital from different business financing institutions. Besides, also, large-cap companies seek capital infusions that help them meet their short term obligations.
Nevertheless, running a small business is tricky. You have to find the best funding model. If you get money from the wrong sources, you might end losing your company or locked into repayment terms impairing the growth of your firm.
Getting a personal loan remains the easiest and outstanding method. You can borrow up to $50,000 to fund your business. However, there are other financial options you can consider, including:
Small Business Investment Companies
Small Business Investment Companies is a program that provides venture capital to willing small businesses. The investors who are funding the startups could be investment companies, private pension funds, wealthy individuals, etc.
The method of funding is competitive as a venture capital firm might have numerous projects competing to get the money.
On the other hand, the underwriting requirements for venture capital are less stringent, unlike those for an IPO. It is, therefore, a great opportunity and an attractive way to find your small business funding.
The other crucial option to fund a business project is to look for an angel investor. Angel investors are people having a significant amount and like to provide finance to startups.
Angel investors are groups or wealthy individuals looking to get high returns on their investments. Many angel investors search for early-stage companies to invest in and also provide technical and operations skills to them.
The angel investors can also provide funds to the second round of growth after having provided the start-up funding.
Family & Friends
If your business funding only requires relatively small capital, it’s best to think about the less formal means. Family and friends who are believing in your business potential are the people to approach. They can provide you with a simple and beneficial means of repayment terms.
You can consider different methods of repaying them. For example, you can agree to repay the way you would do with a debt financing deal or offer them stocks from the company.
This method of financing utilizes both equity and debt financing options. The reason why it is referred to as Mezzanine financing is that intermediate-sized businesses usually prefer this financing method. In this financial method, the lender will make a loan, and your company will pay back the loan under negotiated terms.
Besides, with mezzanine capital, the financial lender will set terms like the financial performance requirements before funding the company.
The Bottom Line
When looking for financial options to fund your business, choose the best that favors your needs. However, it is more advantageous to examine and consider one without traditional sources. If you don’t have family or friends to help you, personal loan financing is the easiest and convenient option to fund your business. After the business has grown to reach performing stages, you might consider other options such as equity.