Today, there are more options than ever when it comes to new business financing. This article goes over several of those options to help you assess the different financing paths you can take.
Home Equity and Personal Savings
Before taking on debt or engaging with investors, entrepreneurs should first investigate using their personal savings. After that, home equity lines are another good source of capital. (Keep in mind that you will need a plan to repay the home equity expenses should the business take longer than anticipated to become profitable.)
Credit Card Debt
Credit cards are a relatively easy method of accessing funding. The downside, however, is that they usually carry high-interest rates. They should be used sparingly.
Angel Investors and Venture Capitalists
Angel investors and venture capitalists inject cash into businesses. Angel investors are individuals with a high net worth who typically pump money into a company when it is starting up. They are interested in seeing the company get off the ground. Venture capitalists, meanwhile, are more interested in the growth potential and profitability of a company. They, too, provide capital to firms. Both angel investors and venture capitalists seek equity in the company in exchange for their contributions.
While angel investors and venture capitalists can be helpful, entrepreneurs should be wary of how much control of the business these entities obtain. And if a friend or family member serves as an angel investor, you should still carefully outline the parameters of your agreement with them. A lawyer can help here.
Business loans are perhaps the most well-known business financing option. Traditional loans come straight from a bank, and well-established businesses have an easier time obtaining them. Newer and smaller businesses may have more success in gaining a loan with the help of the Small Business Administration (SBA). Essentially, the SBA backs loans, reducing the lender’s risk and making a borrower more palatable. To learn more about SBA-backed loans, check out their website.
For more tips on business financing and other subjects, check out Integrity Financial Capital‘s additional blog posts.