The money that you use to fund your enterprise may determine its future course. For instance, whether you pay for the business alone or use someone’s help to do so will determine whether the business is a sole proprietorship or a partnership. The best way business structure determines the way you pay taxes, the way you make executive decisions and much, much more. Also, having to repay the loan you’ve taken may determine your expenses, thus putting your profitability in question. Every single fundraising method has its pros and cons. Let’s take a look at some of the best/most popular options you have available.
1. Personal means
The majority of entrepreneurs fund their business through personal means. The main reason for this is the simplicity of the process, as well as the fact that they keep all the equity in the business. What does this imply? Well, you could dip into your savings fund or your 401K. You can also sell an asset (car, home, rental property, etc.) or get a personal loan. The key thing is that all the money is yours and that you don’t get to share equity with anyone else. This is usually the simplest way and a method that you can use in order to keep 100% of equity for yourself.
2. Borrowing money from friends and family
Friends and family may lend you the money to start a business. In fact, about 38% of all first-time entrepreneurs get the money they need from their friends and family. This fundraising method, nonetheless, has two different aspects to it. First, you can customize loan terms in the agreement with your creditor. The problem lies in the fact that a lot of people don’t take these loans seriously, which eventually destroys a great personal relationship with a loved one. A bit of responsibility on your side, however, can easily prevent this.
3. Business loan
The most convenient way of funding your business lies in the idea of going to a bank or a credit union. Commercial business loans specialists often understand the conditions that first-time entrepreneurs are in. This means that they are likely to provide loan terms under which your business can thrive and prosper. This method is accessible and convenient, most importantly, it requires no collateral. This means that you can start your enterprise from scratch. It also gives you a way to create the infrastructure of your enterprise without having to dip into your savings account or spend your working capital.
One of the best, most tech-savvy means of funding your business is the idea of crowdfunding. The way this works is simple, you find a suitable platform, present your idea in the best light and you get people to pledge the amounts of their own choosing to your cause. The biggest problem here lies in the fact that having a good idea is not enough. You need to find a way to sell an idea to a huge group of people who are not necessarily knowledgeable about all the peculiarities and technical aspects of your industry. Keep in mind that one guy managed to raise $55 thousand in order to make a potato salad while so many legitimate business ideas failed to reach their crowdfunding goals.
5. Find a partner
Finding someone to fund a part of the enterprise is an idea that a lot of people eventually resort to. This is not just about sharing expenses but also about sharing administrative responsibilities. A partner is someone who is as invested in the business as you are. This means that they can be entrusted with the most responsible of tasks, something that you would have a hard time trusting an employee with. The most important thing to keep in mind here is the fact that a partner needs to share your vision, not just your interests. With that in mind and without further ado, finding the right partner is a complex process.
6. Venture capital
Venture capitalists provide funding to startups looking for a cash injection in exchange for equity in their firm. The benefits of this form of funding are quite numerous. First, you get the money you need and can use it to expand the company. Since you’re selling a part of the company, you have no future obligation for repayment. Most importantly, you’re gaining an ally with a solid standing in the business role. It is in their interest that your enterprise makes it, which is why they might offer some guidance or provide you with leverage in negotiations.
As you can see, every method has advantages and disadvantages. It is also hard to determine which of these advantages/disadvantages are a priority. It is a matter of subjective perception and something that each entrepreneur needs to decide for themselves. In order to make this decision data-driven, you need to know all the facts and know exactly what you’re getting into. Luckily, now you know better.