Capital is often needed to expand small businesses. There are many options of funding that can be used to fund small businesses. You should prepare a business plan and outline how you intend to use the funds before you start looking for funding.
It is important to understand how you will repay it and why your company is worth the risk to investors. Investors will be interested in information about the management of the company. This is so they can trust the business plan and the people who are behind it.
How can you find the right funding options to help your business grow? These are seven funding options and what you should consider.
Your own savings are the best funding source. You can tap your savings to launch your company and keep all profits and company ownership. Sometimes, that is not possible so you will need to look for alternatives.
Also read: 7 Simple Steps To Getting A Business Loan
Loans from friends and family
Sometimes, the loan amount will be provided to friends and family members. If they lose money, this approach can be detrimental. If the business succeeds there may be a stronger bond.
Although credit cards are the most convenient way to get money, they can be expensive as the interest rates on credit cards ternd to be high. Rachel Alexander, a consultant for small businesses, says that credit cards are flexible. “You don’t have to justify where you’re spending your money.”
Your credit limit will decide how much you can borrow. This is likely to be less than the amount you would get from the bank. Credit cards can be a great source of capital for entrepreneurs who want to take ownership and control of a company.
In the last few years, online crowdfunding has become very popular. These sites are used to raise funds for specific products. Crowdfunding is time-consuming. It involves putting information on a website, often with video or photos of the product.
Crowdfunding is a great way to sell your products and raise capital. However, you might need to spend a lot on incentives to encourage people to sign up. Crowdfunding sites may limit your access to the money, and you might be required to meet a fundraising goal.
Alexander says that getting a line of credit or a loan from the bank can take longer than applying for a credit card. You will need to prove that you can repay your debts in order to present your case to the bank. A business plan and financial forecast are required by the bank.
Alexander states that “understandably, banks need to know that they’re going get paid back.” There are many types of loans that banks offer, including those through the Small Business Administration. Some loans require collateral in case you do not pay back your loan.
Angel investors are wealthy individuals who receive an equity stake in exchange for financing. They are usually looking to make a profit, and often have the business knowledge they can share with you in order to help your company grow. Alexander says that angel investors might review your business plan. They may also ask you to present a compelling case for why they should invest. Entrepreneurs should make sure that their business plan is sound during the vetting process.
Venture capitalists are similar to angel investors in that they take equity in your company in return for financing. Venture capital funds are similar to mutual funds, in that they pool the money of many investors. Venture capitalists have also business knowledge in the areas they invest in and will be involved with the management of the business. You will give up some equity and control in exchange for large amounts of capital.
Consider how much capital you require and what you are willing to sacrifice in return for that funding. This will help you determine the best route to take to obtain capital to expand your company.