Types of Venture Capital and Financing Options

Starting a new business or expanding an existing business is an exciting time in most people’s lives. But starting and running a business can also be stressful, especially if you lack the know-how of the business industry or if you don’t have enough experience with business finance options. Entrepreneurs can either purchase business loans or apply for small business finance through a bank or other financial lending sources. However, securing a small business loan or a business finance can be an arduous, drawn-out procedure, particularly for people with bad credit.

While there’s no ‘bend on the budget’ rule for most entrepreneurs, they still must first establish themselves as capable of managing a business. Banks and other lending sources may feel more willing to lend money to those who have established their credibility as a reliable business owner. This makes VC a very attractive option for both established entrepreneurs and startups. However, traditional banks and lending institutions have a wide range of criteria they consider suitable for investment, and they don’t usually have access to a wealth of business finance options available to small business owners. As a result, entrepreneurs seeking conventional business funding run the risk of being turned away.

An increasing number of venture capitalists and angel investors are now providing seed funding to both new and growing startups. Venture capital funding is also referred to as a venture capital. An angel investor, as a private funding source, usually provides a line of credit for a business in return for some percentage of the business’s future profits. This arrangement provides small business owners with the financial capital they need, but it leaves them open to risks because the entrepreneur is risking his own future profits in exchange for the VC’s trust. As a result, entrepreneurs seeking angel investors should expect to give up control of their business in exchange for a small amount of money and time.

As a rule, entrepreneurs seeking venture capital should expect to give up control of their business in exchange for a small amount of money and time. However, there are a few venture capital sources that will help entrepreneurs obtain seed financing without surrendering total control of the business. Two of the most preferred business finance sources are traditional banks and traditional non-traditional lenders such as angel networks and venture capital associations. Although most banks do not actively encourage startups to raise capital through these sources, the opportunity to receive a warm introduction to a large number of capital funds is often more attractive to small business owners.

The traditional bank is an excellent source of seed money for a new business startup. Many banks offer a variety of business finance programs designed to help new businesses obtain small business loans, merchant cash advances, lines of credit, and business loans. Because these programs are offered by a traditional bank, entrepreneurs may feel more comfortable raising startup capital from this source. However, a number of obstacles remain, and borrowers should be aware of the risks of using a traditional bank to finance a business startup.

Since most of the financing provided by a traditional bank is interest-only or negative-amortization loan programs, startup businesses may not have the ability to obtain much-needed funding until they have proven their business model and obtained a reasonable profit. In addition, most startup business loans require repayment of interest and fees even after a business has received a profit. In order to obtain a reliable, risk-based business financing option, startup entrepreneurs should plan to repay the startup loan with equity in the business after it receives a significant amount of revenue.

Another source of venture capital is through strategic partner financing. Unlike angel investor financing, which is more based on an entrepreneur’s business model and history, strategic partner financing allows business owners to raise money based on their business performance. This method provides business owners with a partner who will invest in the business during its startup stage, providing them with a secondary stake through an investment partnership. Partner financing is often more advantageous than an individual investor because it provides a business owner with a partner who is knowledgeable about the business and has the resources necessary to make a successful investment.

One final source of startup capital is through personal credit score capitalization. As previously mentioned, there are many different options for raising startup capital, but few provide as much flexibility and risk aversion as personal credit scores. Business owners who are seeking angel investors or venture capitalists often apply to small business startups seeking credit cards, lines of credit, or loans for the business. However, small business credit cards and lines of credit have restrictions and interest rates that may prevent entrepreneurs from obtaining the capital they need to launch their business. As a result, entrepreneurs should always work with qualified lenders who are willing to work with business credit scores as a way to obtain the startup capital they need to launch their business.