Starting a new business is an exciting and lucrative opportunity. There are many factors to consider, regardless of the entrepreneur’s economic situation. Securing funding to launch or sustain a new business is both a critical and sensitive step that requires careful planning; identifying the right type of funding specific to your business model and takes time and research.
Bootstrap Funding
Bootstrap funding is when an entrepreneur funds the business with very little capital. Most of the money raised comes from personal savings, credit cards, or other assets such as personal investments. As the sole beneficiary of this operation, the entrepreneur maintains total control of the business. There are no equity investors to pay. All proceeds remain with the entrepreneur.
Traditional Financing
Entrepreneurs can seek traditional funding from banks and other financial institutions to achieve business goals. Financing can range from debt financing, equity financing, to borrowing against retirement and insurance policies. Traditional lending processes are inherently strict and can work against the entrepreneur if the processes are not understood and followed correctly. Understanding the processes and procedures will maximize the chances of success. There are many free resources on the Small Business Administration website, the U.S. Business Advisor website, and at the U.S. Consumer Information Center. Entrepreneurs maintain total control of the business, equity, and proceeds.
Angel Investors
Funding received through angel investors can be money secured through family, friends, and associates of which the vested interests are to see the business succeed. Angel Investors can also be individuals, businesses, or groups with no immediate relationship to the business owner, and in which the vested interests are equity and profit potential for the investment. Monies received can be a one-time investment or an on-going investment to support the business until the business is able to sustain itself from the proceeds. Entrepreneurs maintain control of the business; angel investors may or may not share in the guidance and equity of the business.
Microloans
The Microloan Program was originally developed by the SBA in 1992 to increase small loan options to small businesses. Microloans options have expanding beyond the Small Business Administration since 1992; there are now more options available through peer-to-peer lending sources such as Kiva, Prosper, and the Lending Tree. Microloans are loans that are no greater than $35,000 and are used to establish a small business start-up or to fund growth for an existing small business. Entrepreneurs maintain control of the business, equity, and proceeds; investors receive interest for the investment.
Venture Capital
Venture Capital is money received from groups of investors, investment banks, or other financial institutions that partner together to fund small businesses that are expected to yield an above average return and growth potential. Entrepreneurs that seek funding from venture capital investors are typically unable to secure the funds they need, in whole or in part, through traditional funding. In exchange for the investment, venture capitalists have significant say in the company operations and major decisions, and they receive higher returns.
Small Business Grants
There are specialized grant programs available to entrepreneurs to fund innovation in the areas of small business and specific business groups such as technology businesses, women-owned business, minority-owned business, and veteran-owned businesses.
Crowdfunding
Crowdfunding, also known as crowdsourcing, is the collaborative effort of peer-to-peer social networks and online communities like IndieGoGo, Profounder, and Kickstarter. These are sites with communities of people with similar interests that are willing to pool together money and resources to fund businesses, ideas, and projects of entrepreneurs and organizations via the Internet. Crowdfunding is rapidly replacing the traditional methods of grant seeking, bank loans, and other forms of formal funding. Entrepreneurs maintain control of the business, equity, and proceeds. Investors may or may not receive equity, proceeds, or other specified benefits in exchange for their investment.