Financing is needed to launch a business and eventually ramp it up towards profitability. There are many sources to consider when seeking start-up financing. Equity and debt are the two most popular sources of financing. Government grants to help with aspects of the business can also be an alternative. Entrepreneurs should also look into non-traditional business financing options such as angel investors, personal savings, credit cards, loans from family and friends, and personal guarantees.
Venture capital funds are provided by wealthy individuals who use their personal capital to acquire new ventures. Some well-known venture capitalists are Paul Allen and Bill Gates, who each have different interests. Gates invested in Gates Inc. in the early 1990’s. Allen is an investor in many technology companies.
Home-based business generally does not require equity or debt. Most home-based businesses are self-directed and operated through mail, telephone, fax and Internet. A few small businesses are licensed to do business in their local area through the Small Business Administration. Nancing may not be required for most home-based companies.
An online business is usually run on credit or other forms of non-cash flow. Online businesses rely on their online traffic to generate their revenues. The online commerce model makes it difficult to raise finances. In some cases, if a small business has been established for a while, it may not be considered a small business despite being online. In cases where the business is relatively new, there is often still a stigma attached to it and funding may not be readily available.
A traditional business typically requires at least two years or more to become profitable. A traditional business will have the advantage of long-term viability, low fixed costs and access to credit. Lenders will look more favorably at offering loans to businesses that have at least two years of history.
When evaluating a business for potential finance it is important to remember that all businesses are unique and may look different to investors. Investors will also look at different terms and conditions. It may be easier for businesses that are well-established to raise capital. This may be because they have already raised money through other means.
Personal finance can be difficult when you are just starting your business. A good way to invest capital is through an entity such as a corporation or an LLC (limited liability company). In the corporate world, a corporation can be viewed as an entity independent of any one individual. LLCs are created in such a way that the owners have one set of ownership rights, but retain control of the LLC. Investors will generally fund a business in this manner, using either a bank loan or equity loan from a private funding source.
Businesses can raise capital in many ways, both online and face to face. If you are working with a private investor, it is in your best interest to work with them to determine the viability of your business. Your angel investor may provide seed money or stock in the form of preferred stock, which gives you access to a much greater number of investors than you would with only your personal credit or home equity. With the right combination of capital and equity, a business will have the ability to obtain new and necessary equipment, expand, hire new employees, pay staff, pay property taxes, make a profit and more.
Another way to raise money for your business is through what is called an off-line method such as stock market borrowing or obtaining a line of credit. These methods are not appropriate for all types of businesses, especially small businesses where the need for immediate cash is a major issue. Angel financing and off-line stock market borrowing should only be used when the future success of your business depends on having a steady cash flow and significant investors interested in your company’s stock, options, and future profits. Angel investors are usually wealthy individuals who are willing to risk investing in a startup in exchange for the potential for immediate profits, however, if they are experienced entrepreneurs they will want to see the business through to the end and are unlikely to invest multiple times.
If you are interested in raising money through a personal finance source, your best option may be to work with a venture capital firm or bank. These finance companies will typically work with entrepreneurs who have little to no venture capital or business experience. They will serve as your consultant and provide you with a business plan that details the reasons why your business will succeed and how they plan to acquire the necessary funding. They will then work with private investors or wealthy individual supporters to provide you with the capital that you need in order to launch or expand your business. The advantage of working with venture capitalists or banks is that they have much more experience and knowledge about raising capital and are often much more likely to be successful in their investment of your business.
Entrepreneurs may also turn to other small business owners in their area in order to raise money for their business. This can be very beneficial, as these entrepreneurs may be able to provide you with the expertise needed in marketing your business as well as access to capital from other local entrepreneurs. Additionally, if you choose to work with a local entrepreneur you may be able to find them to help you pay for advertising in your local area as well.