Starting a new business will often require financing to get it off the ground. There are different ways to get the financing support you would need to get your idea off the ground. Below are the top 5 financing sources.
1. Personal Investment
One of the easiest ways to finance your business is by using your own saved up money. You also have the option to use your assets as collateral. This will prove to investors as well as bankers that you are willing to commit long-term to your business and that you understand what is at risk. We can classify firms such as DFW Hard Money Lender as an example of personal investment since they require collateral before the loan is approved.
2. Love Money
After the personal investment, you can also get financing from your friends and family such as spouse, parents, or close relatives. Investors refer to this as “patient capital” which is to say money that will be repaid later as your business begins generating a profit of its own.
When you consider this option, there are things you should keep in mind.
- Family and friends very rarely have the capital to loan to you.
- They might ask for equity in your business as assurance.
- Forming a business relationship with someone you are close to personally should never be taken lightly.
3. Venture Capital
An important thing to keep in mind when using venture capital for financing is that it is not limited to entrepreneurs. From the very beginning, you should be aware that many venture capitalists look for technology-based endeavors and companies that have high-growth potential.
Capitalists will often take an equity position in the business to help carry out the project. This might involve giving some of the ownership in the business to an external party. Venture capitalists also expect a high return on their investment which is often generated the moment the business begins offering shares to the public. As a business owner looking for financing, make sure you take on partners with relevant experience and expertise in your field.
Angels refer to wealthy people or retired executives who invest in small firms that are owned by other people directly. Most often, these individuals are leaders in their own field who are willing to contribute their experience as well as offer their network of contacts to budding enterprises in the same related field. These angels often finance the early phase of the company, around $50,000 to $100,000, as opposed to venture capitalists who offer funding upwards of $1,000,000.
In exchange for their monetary investment, angels would want to have the right to supervise how the company is managed. This might often involve a seat on the company’s board of directors. Angels also like to keep a low profile and some will even go so far as to require a third party to arrange transactions and interactions with the business owner.
5. Business Incubators
Business incubators usually focus on the tech industry. They provide support for start-ups in different phases of their development. There are some incubators, however, that focus on areas such as hosting and sharing services, and job creation. They might invite businesses to share their premises and other resources.