To begin with, starting a business is truly a painful process, but at the same time, quite rewarding. The difficulties arise when it comes to funding it and hence, it is important that you have different options open. A great business plan is indeed a foundation of any business, but financing is that element that actually allows us to kick-start it. So, if that is not sorted, nothing will ever fall into place.
When it comes to owning and financing a new business, it is never a wise idea to put all the eggs in one basket. It is in the best interests of the business to diversify their financing sources so that if one door closes, you have the other one. Additionally, it will also broaden up options for you by improving the chances of getting an appropriate stream of finance.
Speaking of this, if you are a small business owner, it becomes even more challenging to be able to secure a loan from the bank.
So, if you are a small business owner, you have come to the right spot. In this blog post, we are going to explore funding options for small businesses.
Venture capitalists:
They happen to be a total external group, who in return of capital takes part ownership of the business. However, the value of the company decides the percentages of ownership. Additionally, these percentages are negotiable.
This is an ideal option for businesses who are short of physical collateral to present as a lien against a loan from the bank. Having said that, it is only suitable when the business possesses a massive potential in terms of competitive edge. It could be anything from a patent to having a captive customer.
The benefits which forming a liaison with venture capitalists are not necessarily financial. This particular relationship can provide a lot more than just money. It can bring in an abundance of knowledge in addition to connections from the industry alongside a clear picture regarding where you should take your business. After all, there is nothing better than the guidance from a group of experienced investors.
Angel Investors:
Well, venture capitalists and angel investors are thought to be one and the same. However, it is one big misconception which needs to be sorted. So, are you wondering where does the difference exactly lie?
To begin with, venture capitalists are large and established business entities which offer investment in return for equity. On the other hand, angel investors happen to be individuals with a priority to invest in a start-up. The difference lies in the fact that angel investors do not make demonstrable growth as a prerequisite for investment as a venture capitalist would.
Having said that, being able to find an angel investor is as fruitful as it would be finding a venture capitalist. However, the former would be able to give you more personalized control than the latter.
In addition to this, they are going to help, assist and guide you with their expertise in the long run.
Crowdfunding:
Crowdfunding is that option that can give small business a major boost.
To put things in perspective, it is a way of gathering funds through online platforms. To put it exactly, they enable small businesses to pool in investments from several sources at once, unlike other options which you need to seek out a single investment.
Through crowdfunding, you can collect funds to have your business pass through the developmental phase and move on to the phase where you can pitch it to major investors.
It is important to note that every crowdfunding site comes with a fine print bearing crucial points regarding equity. They must be read through thoroughly before opting for a crowdfunding platform.
Furthermore, make sure to run detailed research about the pricing and fee structure of each and every platform to be able to make the most out of them. Well, in case you are wondering, the crowdfunding sites need monetary assistance in the form of fees and pay-out structures in order to generate maximum profits and maintain operations.
Other than this, ensure that you compose a compelling pitch to be able to appeal to the investors for funds.
Peer-to-peer or marketplace lending:
Peer-to-peer or let’s put it P2P lending refers to an option where capital is raised through websites which serve as an outlet for borrowers and lenders to connect.
To put it simply, an account is to be created by a borrower on the website which keeps records and transfers funds by making a connection with lenders.
In other words, it is absolutely safe to them peer-to-peer, or marketplace is lending a hybrid platform. It is called a hybrid as it has characteristics of both crowdfunding and marketplace lending.
Additionally, countries with better and advanced financial industries prefer using the term marketplace lending.
The best part of choosing this option is that a P2P lending site has a true sense of community to offer. They are packed with active forums having users who are eager to impart and exchange information about lending and borrowing. Therefore, they are gaining popularity as a reliable fund option for all the right reasons!
Convertible debt:
Convertible debt is all about seeking investment from an investor or a group of investors on the grounds that the debt, in future, would be converted into equity. It is hybrid in nature as P2P lending, where this one has debt and equity-like features.
If you, as a small business owner, are considering convertible debt, then it is important to note that although it is a great funding option, you should be comfortable with the prospect of ceding control to a certain degree to the investors.
Opting for convertible debt is indeed a beneficial option considering the fact that it prevents a strain on cash flow. And, this is what any small business would want! The interest rate is somewhat lower in comparison to traditional bonds. In addition to this, businesses are able to collect funds on immediate basis without having their shares diluted.
Conclusion
This is it, and we hope this piece must have generated awareness and given you something to pick and ponder over. The possibilities are endless if you only have the correct eye to weigh down the pros and cons.
Whatever funding option is that you choose, always make sure that you have done ample research before making any decision. Moreover, be very clear about your needs and goals as this is what will be the driving force when you are making your choice.
