Lack of capital is one of the biggest obstacles business founders face, whether getting the shop open for business or taking it to the next level. Those looking for financing have a variety of options. The borrower should evaluate these and other options to determine whether it is a suitable fit.
Entrepreneurs may wonder whether it is better to do it themselves regardless of the benefits of funding. Others may look to cutting-edge options rather than traditional ones. This list is a broad mix. The goal should be to pick one that maximizes the opportunity to meet your goals while minimizing the risk of owing money.
Common options
Business owners may pick one, combine a couple of options or find a different one not listed here. The decision should consider details like the type of business, the amount needed, why its needed, how quickly it is needed, and how long the company has been around:
- Venture capital: Rather than one person, these groups are more like a mutual funds. They have expertise and contacts, but they are in the business of making money, which can feel quite cutthroat if a business is not booming. Depending upon the size of the funding, the founder can also lose control of the company.
- Angel investors: These people also have contacts and expertise but may be as cutthroat. Despite being supportive, they may want more influence than the owner is willing to cede.
- Bank loans: Banks offer several kinds of loans, but there are a lot of hoops to jump through. The entrepreneur will likely need to put up collateral if they want a decent loan rate. It may be the best option for an established business looking to grow that is already a bank customer.
- Crowdfunding: This can be ideal for a small start-up or project-based venture. Some may prefer to keep information private. Also, the platforms take a cut.
- Credit cards: This may be the biggest risk for saddling the owner with debt, but credit card companies ask few questions and don’t care about business plans.
- Family and friends: The most significant risk here can be owing money to, and burning relationship bridges with, loved ones, but working with them can make success that much sweeter.
Attorneys should review any loan agreement
The conditions of a loan are critical, and attorneys should review contracts to ensure that the agreement is fair and equitable. They can also recognize potential legal exposure and protect the company and its founder if there is a dispute.
