Funding 101: 5 Ways You Can Finance a New Small Business

It is easier to start a business these days compared to a decade ago. Nonetheless, it can be challenging to begin when you do not have the capital.

Luckily, there are different ways that aspiring business owners can get the funding that they need. Here are five resources where you might be able to get some funding for your new small business.

1. Bank loan

When you’re starting a new business venture and are looking for funds to get things going, the first thing you think of would be getting a bank loan. Bank loans for small businesses are widespread, but going to the bank to get a loan for your small business has its pros and cons that you should consider.

Before we go over the pros and cons of a bank loan, let’s clarify the difference between debt financing and equity financing. 

The difference between equity financing your small business to a bank loan is that instead of a loan, it’s more like you have investors. Equity funding usually comes in the form of venture capitalists or angel investors, but we’ll cover that later in the article.

Now, what are the advantages of a bank loan? A huge benefit to getting a bank loan is that you’re able to get an affordable way to finance your budding business. Plus, the rates are fixed, and the cash flow in your business will be consistent.

However, there are several qualifications that you have to pass, including a good credit score for you to qualify. Once you do, though, you’ll have access to an easy and simple financing option for your business.

2. Venture capitalists

We briefly mentioned before venture capitalists as being one of the forms that equity funding manifests in. Let’s define what they are.

Venture capitalists are an external group that will give you capital or funding. But instead of you having to pay back the investment, they will be taking part in the ownership of our business. The shares or percentage of ownership will depend on your company’s value and your negotiations with the said venture capitalist.

Unlike a loan, you don’t have to pay back venture capitalists because they’re already part owners of the company. Therefore, if your business fails, you won’t have to pay them back.

Aside from that, venture capitalists can get you business connections and funding that you need to take your business to the next level. However, if you don’t know how to take your business to the next level, it can be a hurdle to jump over instead.

Plus, raising funds is also a process that includes pitching to investors.

3. Angel investors

Angel investors are also in equity funding, but they usually invest in businesses that are barely making any revenue or haven’t even started yet.

These investors can help fund your business as long as you have a well-developed business plan worth investing in that interests them.

Angel investors are best for start-ups or businesses that don’t have a solid foundation yet. Given the high risk that comes with investing in start-ups or companies in this stage, it makes sense that they’re called angel investors.

You can start attracting the attention of a private equity investment company once you have everything all set up.

4. Grants

Grants are an excellent way to finance your business. That’s because you get funding for your business without having to pay it back or give anything in return.

However, it’s not exactly a walk in the park to get.

Business grants can come from both public and private institutions. But they each have different qualifications that you have to fulfill. Aside from that, you have to provide a lot of specific paperwork. There are also restrictions and conditions that you have to abide by should they give you the grant.

It’s free money that you’re going to receive if you can fulfill everything that they require. Plus, you’re more likely to get more grants if you’ve got one already.

However, you shouldn’t rely on grants alone to tide you through as there’s no guarantee of renewal, so make sure that you have a backup plan just in case.

5. Crowdfunding

These days, more and more businesses can get off the group with the help of many people. This is the principle behind crowdfunding.

Plenty of businesses go well over their fund goals through crowdfunding. More so, if their product or service generates enough interest.

Nonetheless, crowdfunding requires more effort than you think, and the quality of the product is not as big of a factor in this as you’d think.

Crowdfunding requires money to get the people to see it. That’s why you need a good marketing plan and PR plan if you want to crowdfund. Otherwise, the crowd won’t be able to see your product, even if it’s good.

The financing resources listed above are the most common ones that you can find to help you kickstart your business. If you’re looking to start a business, but the lack of capital stops you, consider these options. That way, you can start working towards your dream business as soon as possible.

Heron Nelson

Heron is a business blogger with a focus on personal finance and wealth management. With over 7 years of experience writing about financial topics, Heron has established herself as a trusted voice in the personal finance space. She has a deep understanding of financial concepts and strategies, and is able to explain them in a relatable and actionable way for her readers.