Funding is a necessary part of starting a business and ramps it up profitability. There different kinds of sources are available to consider for business start-up services and solutions. At first, the business owners need to come up with proper planning as per their needs.
There are two primary forms of funding available to small businesses- equity and debt. In this article, we will discuss all types of funding that will help start-ups to navigate different sources of funding, discussing advantages, and disadvantages of each funding option, including the stage of business start-ups or small businesses, suit best.
1. PERSONAL SOURCE
It is undoubtedly a good source of money for starting up your business and, you don’t need to wait for funding.
Advantages:
- You can start whenever you wish to start your business.
- You can use your funds according to your test. You don’t need to report anyone for your decision.
Disadvantages:
- If your business fails, then all the savings you put into your start-up will go to waste.
2. CROWD FUNDING
This type of fund gathering process mostly done through the internet, different social media platforms, a vast network of relatives, friends, and colleagues. Crowdfunding also helps to get new investors for the business.
Advantages:
- It is an efficient process to connect with a large number of potential investors and to raise funds for the business.
Disadvantages:
- It is a time-consuming process.
- You need to the patient before the results.
3. ANGEL INVESTORS
Angel investors are maybe wealthy individuals or businesses. They are interested in helping small businesses or start-ups survive and grow.
Advantages:
- You may get worthy pieces of advice and guidance from such experienced people.
- It has flexible business terms.
Disadvantages:
- Sometimes you may be forced to give up your control to some limitations.
4. VENTURE CAPITAL
Venture Capitalists provide a considerable amount of money to businesses in exchange for ownership share or equity of the businesses, and they get a return when the company goes public or attained by another company. Venture capitalists are investors and are all about money. They invest mostly in those businesses, which have the potentials to provide good returns.
Advantages:
- Venture capitalists provide mentorship and expertise along with funding for the betterment of your business.
- It is a source of immediate credibility for business funding.
- Venture capital favors connecting with useful networks of individuals, such as future investors and partners.
Disadvantages:
- You may be obliged to surrender a large portion of your business due to a significant amount of money provided.
5. BANK LOANS
This is a popular source of funding for any start-up or small business. But you need to know about all the various options of bank loans and the interest rates which come with each option.
Advantages:
- The most important thing is you don’t need to give up the controls of your business.
- Can get funds with ease if you qualified the process.
- In this process, you have many options according to your requirements.
Disadvantages:
- Getting a bank loan is a time-consuming process and requires a lot of documentation.
- You need to pay back the total loan amount plus interest without fail. No matter whether your business gets failed or succeed.
- You should have proper knowledge about various loan options. Otherwise, the chosen plan could hurt your business.
6. SMALL BUSINESS ADMINISTRATION LOANS (SBA LOANS)
SBA loans help for funding from a government administration enthusiastic to assisting small businesses to get success. SBA helps small businesses to get capital and ensures an assured percentage of contracts are bestow to small businesses.
Advantages:
- It enhances the chances of getting bank loans if SBA loans adequately managed.
- SBA loan process helps to maintain the relationship between lenders and borrowers.
Disadvantages:
- The SBA loan process has strict guidelines.
7. ASSET-BASED FUNDING
It is a mortgage of fixed assets that you have like building, machinery, equipment, or land.
Advantages:
- This process has a relaxed qualification for getting funds. Also, it has less risk for lenders.
- There is no restriction on the use of funds.
- The interest rate is charged lower in the capital than other comparable unsecured loans.
Disadvantages:
- There is the highest possibility of losing your asset.
- Lenders may undervalue your asset when approving for funding.
- To ensure a proper collateralized loan amount, a lender may require ongoing monitoring of the asset’s value.
