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Having a brilliant idea for a new business is a great start, but what comes next? You need a tech team, a website, social media handles, a working space, and most importantly, you need capital to make all of this become a reality.
Every startup or small business requires some funding to lay its foot firmly in the market. Searching for funding options can be a daunting task, so we did the homework for you. Here are some of the best small business funding options available.
1) Angel investors
Angel investors are individuals who have a really high net worth and invest in small businesses that they think have the potential to grow. In return, these angel investors get an equity stake. They first invest in your business, and when the business becomes successful, they take their share of the profit.
When you present in front of angel investors, make sure you highlight why they should invest in your business. Your business model and plan should be solid, and it should immediately attract their attention.
2) Venture capital
Venture capitalists are individuals like angel investors who invest in your business and then take equity in your business. Venture capital is like mutual funds because they collect money from different investors. Venture capitalists are specialists who have sound knowledge of the market and the type of business they invest in, which is why they help you and advise you on how to run the business. Everything has a price, and the price for getting large amounts of money from venture capitalists is a loss of a bit of your equity and control over the business.
3) Partner financing
In partner financing, another party in the same industry as your funds and invests in your business in exchange for access to your product line, employees, distribution rights, and sales. This option is usually dismissed and overlooked by entrepreneurs when in reality, it is a good alternative. The company that becomes your partner is usually one that is already on its road to success and already has customers, staff, marketing team, and you can gain access to all of it immediately.
4) Convertible debt
Convertible debt refers to when a small business borrows money from a group of investors or an individual investor, and the agreement signed states that the debt would be converted into equity in the future. Convertible debt is a great funding option for small businesses and startups for those who are comfortable in giving some control of their business to the investor.
Another benefit of opting for convertible debt as a funding option is that it does not limit the cash flow while the interest accumulates during the agreement period. The only drawback of such an option is that you lose some control over your business.
In a nutshell
The above-mentioned funding options are some of the most commonly used funding methods by startup and small business entrepreneurs. Each has its own benefits and drawbacks. Apart from these options, there are endless options available such as crowdfunding. Asking your friends and family, bank loans, and using business credit cards. In order to decide which method is best for your business. You need to look into what your business demands. Which industry it belongs to, what your products are and what your personal likes are.