Stuck In Second Gear When Funding Your Business?Posted on 19th Jul 2017
You have a great idea and are energetic and enthusiastic about starting your business. But there is a problem: you just don’t have the necessary funds to get going. You are stuck in second gear as the song from the popular series Friends goes.
Here are some ideas you can cash in on to get your business going.
Basically, there are two ways you can fund your business: debt and equity. Let’s take a look at both options.
Shakespeare wisely said, “Neither a borrower nor a lender be.” But if borrow you must, think carefully before taking up the debt option. You can borrow from friends and family but this can be tricky. If the business fails (and statistics show that a majority of new businesses fail or take longer to become viable than originally estimated), you will risk losing friendships or breaking family ties. If this group agrees to lend you money, make sure everyone knows the risks involved. Put the agreement on a business footing with the terms clearly spelt out.
You also have the option of borrowing from yourself. This would entail using your savings or taking a personal loan against your assets (mortgaging your property, for instance, or selling a second home) to generate cash. Tread cautiously here, because you may be risking the security of your family.
Banks offer many schemes to lend money to small businesses,. Find out all the details—including what’s in the small print. Banks typically require a track record of the business in question and will often want their loans secured with assets.
In the case of the equity route, you turn over an ownership stake to an investor in return for cash. There is no obligation to repay the investor. The downside is that you have to give up part-ownership of your business—you may even end up losing control of the business. Be prepared for the risks involved.
There are several equity options you could consider. Here are some of the most popular:
This is when the business, by and large, funds itself so the investor’s risk is minimised. As the business grows, the cash is used to fund further growth. The sales in the pipeline could be considered sufficient for planned growth. The advice of an experienced consultant is important to determine if boot funding should be undertaken on a case-by-case basis.
This is typically an individual willing to invest in the business. Angel Investors may even form a group to spread the risk and to pool research.
Venture Capitalists (VCs)
VCs typically provide early-stage funding. They are usually interested in making a larger investment in a business that looks promising. They may want a significant share in the business –even a controlling interest.
This is often a preferred funding option, specially if the potential partner has an interest in the category of business. He or she may even be an employee. Partners can bring in resources other than just cash –such as industry expertise and contacts.
This is a web-based route that allows individuals with a business idea or project to reach out to potential investors through various platforms. Multiple investors can fund the same project. Be aware of any restrictions on the operations of crowd funders.
If you truly believe in your idea, don’t let lack of funds bog you down. “Find purpose, the means will follow,” Mahatma Gandhi said. Take the time to make an impressive business plan–getting professional help in this area is a good investment. Be persistent in exploring your best options and the funds are sure to come in to get your business not just going –but growing as well.
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