Choosing the Right Funding Method for Your Business
Have you been diligently saving up to start your new business but still don’t have enough? Many entrepreneurs spend countless hours budgeting and planning for their new business but still aren’t making ends meet. The good news is that there are alternative financing options available to get your business up and running without counting every penny. In order to choose the right funding method for your business, you need to analyze your capital needs, consider your time frame, weigh ownership tradeoffs and look into the payback period.
Analyze Capital Needs
The first step in choosing the proper funding method is to analyze the capital level you need to start your business correctly. Supplies, equipment, and labor can become costly quickly, leading to a detailed business plan outlining projected revenue, costs, and capital gaps a necessity. If you are looking for a small infusion of capital, you can look into a loan from a friend, family member, or financial institution. However, if you need a larger sum of capital, a venture capitalist, angel investor, or pre-seed investor is a viable solution.
Consider Time Frame
The following criteria to consider is how quickly you need the funds. Securing venture capital or pre-seed funding can be a time-intensive activity, taking months before you actually see the funds clear your bank account. If you are looking to hop on a new or innovative market idea, waiting months is not ideal and can lead to market saturation. Quick, fast funding solutions can be provided by a financial institution or private investor, giving you plenty of time to secure the capital and get your business moving before the market shifts.
Weigh Ownership Tradeoff
Another aspect of funding to consider is the ownership tradeoff most investors require when they infuse capital. When your startup receives funds, they aren’t free. Instead, investors want ownership shares in your company, entitling them to any future profit or loss. If this doesn’t sound appealing to you, look into a traditional term loan with a bank. Banks don’t require ownership percentage for a loan; however, loan amounts are smaller compared to private investors. Create a detailed chart of what ownership percentages you are willing to give up for certain levels of capital offered to you.
Look Into Payback Period
Once all those factors are figured out, it will be time to look into the payback period. The payback period is how much time you have to return the initial investment of capital to financial institutions or private investors. Generally, private investors don’t require a payback since they get ownership in your company instead. You don’t want a loan bogging down your earnings over the next 10 to 20 years. Nevertheless, a longer loan term might be needed to ensure enough money is flowing through as profit depending on the loan amount.
IN SUMMARY:
Choosing the right funding method for your business can be stressful and overwhelming, but luckily Divocate can help. Divocate is your go-to expert when it comes to major business decisions because of their expertise and experience. Reach out today to see how they can help your business choose the best funding option.
