Startup Funding

Nothing Ventured Means Nothing Gained When you decide to start a business then odds are you will need startup funding. Once you decide how much you need, the first order of business is deciding what type of lender to approach. It might be Uncle Joe who is certainly an option as a private investor, but it will probably be an investment banker, equity partner, business lender or venture capitalist. Then again, it might be an angel investor or private lender who believes in entrepreneurship. Looking at the list of possible start up funding lenders, it’s clear you have many choices when it comes to finding money for your business. It’s unfortunate that many new entrepreneurs go straight to their banker for a loan, get turned down and then turn to Uncle Joe. There are many other sources of funding you can pursue before you put your relatives on the spot. There are two broad categories of startup funding. 1 Equity financingrn2 Debt financing Within each of these two broad categories are the various types of specific funding opportunities. Equity financing refers to when you receive capital but in exchange you give up part ownership of the company. When using debt funding, you receive funds in the form of a loan. The loan must then be repaid. Venturing into the World of Equity Financing Equity funding usually comes from one of three sources: institutional venture capital, equity partner loans, and angel investors. In exchange for funding your business, the equity funders will want to assume some form of ownership. Ownership may be in the form stock shares if you are incorporated or a partnership if you are not. Some new business owners prefer to pursue debt funding to avoid giving up any control of the company. A lot depends on the amount of start up expenses and first year operating capital you need. If you are starting up a high tech business that requires a heavy investment in expensive equipment, taking on a partner or selling stock may be the best way to raise significant amounts of funding. On the other hand, if you are a very small start-up then you may want to keep 100% control of your business. In that case, debt funding will most likely be your best source of startup funding. Taking on Debt for a Good Cause Debt financing refers to funding you accept as a loan and that you must pay back. Though you go into debt, you also retain ownership and management control of your business. You can search for line-of-credit loans, installment loans, mortgages, inventory loans, secured loans or even small business administration loans. Business loans come primarily from investment bankers, business lenders, and commercial finance companies. Looking for Money Everywhere When you are looking for seed money, the rule of thumb is to look everywhere. All too often startup businesses try to manage the business on inadequate funding and it is one of the primary reasons for business failure. Unless you have enough money for startup and to pay operating expenses for the first year, your business could easily run into financial problems. In fact, the Small Business Administration says that lack of capital is a major reason why approximately half of all small businesses will fail within the first 5 years. The best way to start your business is with adequate startup funding. Start with solid financial support and half the battle for success has been fought.