5 Best Ways to Fund Your New Business
Starting a new business or expanding an old one can be capital intensive, no matter how small it is. A new venture, even if it is small, relies on money to flourish. However, raising funds is one of the primary challenges of every business owner or entrepreneur.
After all the necessary research and knowing how much startup capital you need, how and where to raise the capital becomes the next hurdle. This is even more difficult if you have no prior business experience. In such a situation, the risk becomes high, and few people or financial institutions may want to take that risk. But with a well-researched and written business plan, you always have a chance of securing the needed funds to start your business. After successfully establishing your business, you can turn to a commercial cleaning company in Phoenix to take care of all your company’s cleaning needs. Here are some best ways to fund your business.
Unless you need huge capital or you don’t have the financial muscles, self-funding is one of the best ways to fund your business. Self-funding gives you absolute control over your business and, most importantly, some peace of mind. Instead of worrying about how to meet your next loan deadline, you focus primarily on how best to run the business.
Self-funding can come from your personal savings or contributions from family and friends. You should be careful when tapping into a retirement fund to raise capital because when the business fails, it means your retirement may be in jeopardy. That aside, such acts come with potential penalties.
2. Relying on investors
If you are seeking a huge capital, which you cannot raise yourself, then relying on investors becomes an option. With a good business plan full of prospects and significant growth potential, you can raise capital from investors in the form of venture capital (VC).
Venture capital funds provide financing, technical support, and managerial skills to fledgling companies or startups in return for an ownership stake in the business. As a shareholder, the investor takes an active role in the management and decision-making of the company. So, in essence, you lose some control and ownership of the business but then get the needed funds to start it or even expand it.
Venture capital isn’t a loan package, but investors buy equity in the business with hopes of higher returns when it prospers. With this, you share both profits and losses, and you wouldn’t pay the investors back when the business fails.
How to access venture capital fund
To access venture capital funds, an entrepreneur must submit a business plan to a venture capital fund. The plan must have enough prospects and be promising enough to attract attention. When considered, the VC managers will do due diligence on the business idea, model, product, management, business compliance, and growth output, among other important areas. If the results are positive, the venture capital firm will fund the business in exchange for shares in the business. The firm will also take an active role in the management of the company to ensure the prospects are met.
3. Bank Loan
Taking a bank loan is another way to seek business capital while retaining full control over the business. To acquire a business loan, you need to present a business plan to your bankers for consideration. This should also include business projections and prospects for at least the next five years. This will not only guide you into knowing how much you need but also assures the bank of your ability to pay back the loan. Once everything is in order, the bank will release the funds to you. It is important to compare loan offers, whether from a Kona credit union or a New York bank, to choose one with the lowest interest rate. There are also other ways you can receive a loan, many companies can offer loans to help kick-start a business or if you’re ever in a situation in need of some extra money. If you’re a small business, a company like Lendio would be great to get in contact with for a small loan.
You can also enter into a partnership agreement with like-minded individuals to run the business together. These individuals will ultimately own shares in the business according to how much they invest based on individual shares of the ownership, management, profits, and liabilities of the company.
There are two forms of partnership; general partnership and limited partnership. In general partnerships, the partners are personally responsible for both assets and liabilities of the company, while limited partnerships protect partners’ personal assets from future financial claims from creditors.
Government or corporate grant is another flexible way of funding a new business; grants are non-payable but require accountability. It is highly competitive, and beneficiaries are scrutinized to the core to ensure the right people benefit. To receive a grant, your business must make a positive social impact, including solving a critical social challenge.
Although funding is one of the most important ingredients in starting a new business, you should be careful about the kind of agreement you enter into. Each of the listed funding vehicles has pros and cons, and some require legal advice/representatives to avoid future legal battles. Your choice should suit your business funding needs, and you should also avoid overborrowing or under borrowing.