Start-ups often find it easier to access money from personal savings, family, friends, microloan organizations or crowdfunding, while established companies with a track record of success, find it easier to acquire money from banks, government loans or angel investors.
If you are using other people’s money, there are two types: debt and equity. Debt financing means the money is borrowed and has to be repaid usually with interest. Equity financing involves the business acquiring money by giving up some ownership in the company.
18 Ways to Find Money For Your Business
Angel investors are high net worth individuals that invest in local smaller companies for a return on their money and/or ownership in the company.
Bank business loan is money that is more often available for an “established” successful business. Banks prefer to make a loan to an existing business versus a start-up to lower their risk in lending.
Bartering is a system where goods or services are exchanged for other goods or services without the exchange of money. Example: A new restaurant needs a logo and barters with a graphic designer for a logo in exchange for meals at the restaurant.
Cashflow is the amount of money the business is creating. Positive cashflow can be reinvested back into the business.
Crowdfunding is money that is raised on the Internet i.e. Kickstarter. Crowdfunding can be for a start-up or an existing business.
Customers’ capital is pre-sold products or services to customers to raise capital.
Factoring involves a business selling its accounts receivable, or invoices, to a third-party commercial financial company, also known as a “factor.” Businesses can access cash now versus waiting 30 to 60 days for a customer’s payment. Factoring can also be called “accounts receivable financing.”
Family and friends can provide money for an entrepreneur to start or grow a business.
Finance companies can be profit and non-profit organizations that loan money to businesses i.e. Small Business Investment Company (SBIC). This source of money can be for start-up or an existing business.
Government loan is money that the government allocates for backing a loan where an entrepreneur borrows from a local bank or microloan organization i.e. Small Business Administration (SBA) Loan.
Grant is money that a business does not need to repay. Grants are usually more available to a non-profit versus for-profit business. SBIR would be an example of a grant for a for-profit business.
Leasing is a way a business can lower capital needs by leasing versus buying.
Microloan is a loan typically under $150,000 and a source of funding for a start-up or existing business with good credit.
Personal or Business Credit Card can be a source of money for buying goods, services or taking cash advances. Be careful of high interest rates.
Personal Loan can be a source of money, i.e. home equity line, from a bank to start or grow a business. May be easier to get than a business loan when starting a business.
Personal savings is money or assets that an entrepreneur owns or has access to start or grow a business. Have something you are not using, i.e. a boat or motorcycle, may be time to sell it to raise money for the business.
Trade credit is buying products or supplies on credit to lower initial capital requirements. Be sure your cash flow allows you to pay them back.
Venture or equity investor provides money to entrepreneurs to open or grow the business in exchange for ownership in the company and being involved in making company decisions.
Action Step: After reviewing the list of sources of capital above, what do you see as your best sources of capital.
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