How am I going to get the money I need to start or grow my business? It’s a question every business owner has asked themselves multiple times. Let’s look at the different sources of capital and the cost and benefits of each. And register for our free webinar, Raising Money For Your Business to help you prepare.
Friends, Family and Fools
The most common source for money is friends, family and those individuals you’ve somehow convinced to write you a check. These are often informal loans, secured with little more than a handshake and at very low interest rates. Securing these loans requires very little work on your part so this is a perfect resource for when you’re just starting out.
The downsides can be significant. First, adding a financial stake to a personal relationship can cause stress in the very support systems owners rely on. In addition, you likely won’t be able to raise very much and businesses require a lot to start and grow. So while friends, family and fools may help with seed money, you’ll need another source for real growth.
Today you can crowdsource everything from movies to college loans. Indiegogo and Kickstarter are the most well-known crowdsourcing platforms, but there are others too that specialize in industries and offer varying fees and levels of support. The upside is pretty obvious; you get lots of money without giving up ownership of your company. You’ll also build awareness and a customer base! However, you must manufacture something, so service companies are out, and you must have a great pitch to encourage people to invest in your idea. Also, prepare to pay fees to the crowdsourcing platforms.
Angels and VC’s
Angel investors and venture capital firms get a lot of press because of the drama associated with investing so much on something that will likely fail. It’s very exciting! In addition to the cold, hard cash, Angels and VCs also provide experience and advice as well as access to a network that any startup or small business would kill for.
But, the truth is, it’s very difficult and costly to secure funding from these sources. These are business people after all, investing a lot in you so they will require a great business plan as well as an ownership stake and at least one seat on the board. In other words, it will no longer be just your business!
While traditional, banks are still a good source for obtaining large amounts of capital to start and grow a business. Like Angels and VCs, they’ll require a good business plan and may also require capital and you’ll have to pay interest on your loans. But, if you’re keen to maintain control of your company, banks remain the primary source of funding.
If you’re looking to start your own business or finance your growth, you have a variety of options. To learn more strategies to prepare you, be sure to register for our free webinar, Raising Money For Your Business an essential resource to get you ready.