How to obtain funding for a business is something that is on the mind of every entrepreneur who has ever had an idea for starting their own enterprise, and with good reason. In order to get anywhere, regardless of the stage that the company is in, you need to be able to successfully manage your finances down to the last penny.
For the average startup, this applies to being able to get the enterprise up and off the ground. Established businesses need effective money management for growth and expansion. In a long-standing business, managing finances has everything to do with holding on to market share and keeping competitors at bay.
Proper business funding is essential to everything from day-to-day operations on up, but just what is the answer to the question of how to obtain funding for a business?
Well, let’s take a look at some of your options:
You could receive funding for your company through equity financing
If equity financing is the route that you decide to take in order to finance your company, then you should know the basics behind this practice.
- Equity financing is the same as getting investors on board with supporting your company. You agree to allow these investors to purchase part of your company. They give you money for operations and they, in return, receive a percentage of the profit that comes in
- This approach for securing funding means that you can come across a large amount of money on which you will not have to pay interest but, at the same time, you lose some control in your enterprise.
Investors who own a large enough part of your company may have some input into how things are run, so you want to think about who you approach if you decide that this is the answer to how to obtain funding for a business.
If handing over part of your company to an investor doesn’t sound like an appealing option, then….
You could look at taking out private loans
When business owners are trying to figure out how to obtain funding, this is often the most common approach.
This comes with its own unique characteristics, of course:
- By borrowing money from a bank or finance company, you can obtain the kind of capital you need to get going without having to give up a controlling interest in for company.
- Your company’s profits belong to your company and no one else.
- Like with any other kind of loan (such as a car loan) you will have a timetable by which you have to pay back what you borrowed. That loan will, of course, carry interest with it.
When it comes to getting a loan from a bank or finance company, you should also know that doing so requires a lot of research.
Lenders are hesitant to extend loans to first time entrepreneurs because of the level of risk associated with running your own business for the first time.
You can increase your chances by constructing a strong business plan that will outline how your company will be run. You should be aware of the fact that, even if you are successful, you may have to put up collateral.
When figuring out how to obtain funding for a business, these are two ways that you can approach it…
But, in a few instances…
You can obtain a grant
Free money that doesn’t have to be paid back; how does that sound? In answering how to obtain funding for a business, this is the most attractive option.
This is what a grant is, in essence. Since grants are given to an entrepreneur and don’t have to be paid back, this is the best way to find a business but, of course, there are some things associated with grants that make them harder to come by than any other source of funding.
- Some grants may not give you full funding, but what you do get may still be substantial enough to get you going.
- As stated, the money is yours. There is no paying it back.
- Grants are only given to enterprises that are applicable, meaning that your company has to be in a certain field or sector to even be considered. This usually means something like a non-profit organization
- You will likely have to abide by certain conditions once you begin your operations
Because grants are free money given only to certain enterprises, they can be harder to find and harder still to obtain.
If a grant is your answer to how to obtain funding for a business, then you want to get started on applying as soon as possible, because the application and approval process can take time.
Which one is right for you?
What’s right for one kind of business may not necessarily be correct for another, so you want to think about your source of funding very carefully when you are running your business.
Take a look at the kind of business that you want to run and what you need in order to make your vision happen.
Your startup might not require the things that others need in their daily operations, so look at every area of your business, from personnel down to supplies, and you’ll get a general idea of how much seed money you need.
Once you take that into account, the task of answering the question of “how to obtain funding for a business” gets a little easier.
Remember, running a business successfully does not need to be complicated. Keep it simple!
Contact us for more information on how we can help you grow your business. Follow us on Twitter @portalcfo
Manny Skevofilax is a consultant and speaker that helps his clients successfully navigate the challenges of growing their businesses profitably. Since 2003, Manny helps businesses enhance their results by using his experience in strategic planning, financial statement analysis, operations, organizational development, and team-building. His consulting firm, PORTAL CFO Consulting, Inc., has attracted clients from diverse industries in the United States and abroad.
Manny can be reached at 410-808-3441 or via email at firstname.lastname@example.org.