Key Takeaways
- Choosing the right funding options matters more than the money.
- Self-funding or using funds from your savings allows you to be in total control.
- Some funding options are tied to your business shares, sales, or repayment of the funds.
Having a business idea may be great; however, finding the right funding options can be challenging. Money is a very essential tool and a must-have to ensure business growth and expansion. As a first-time entrepreneur, you should know that these funding options are not without their own advantages and risks.
However, selecting the right option will depend on your business needs and long-term goals. If you are a business owner searching for ways for people to invest in your business, come along as we explain the various options available for you.
Funding Options for First-Time Entrepreneurs
If you are a first-time business owner seeking ways to fund your business, check these out:
Start With Your Savings
The first and easiest way to fund your business as a first-time entrepreneur is to use your savings. Using your personal savings does not come with the risks of repaying loans with high interest or the labor of running after investors. It lets you maintain total control over how your business operates and teaches you how to manage your finances.
The downside of this method of funding your business is that it can limit growth or slow the business down.
Small Business Loans
Small business loans are accessible from banks and financial institutions for new business owners. In the US, for example, programs supported by the Small Business Administration help small business owners access loans with easy terms and lower interest rates.
How these startup loan options work is that you get a loan and pay it back with interest over a period of time. The downside of a small business loan is that you need good credit to qualify, collateral, and it can take a while to settle your finances when paying back a loan.
Angel Investors
Individuals or corporations that invest in start-ups in exchange for a share in their business are known as angel investors. These investors provide funding, industry connections, and guidance when necessary to startups. To get angel investors, you will need to pitch your business idea and reveal how they can benefit from it in the long term.
However, first-time entrepreneurs will have to give investors a share of their business, and as co-owners, investors may also influence every decision made for the business to help ensure that their investment in your startup business is protected.
Revenue-Based Financing
This funding option allows entrepreneurs to retain full control of their business for a long time while still accessing funding. How this works is that you get an investor, and you both agree to share a percentage of your business’s future revenue until a certain amount is paid.
This method allows for a flexible payment structure with no pressure to repay the loan. The downside of the revenue-based financing is that the total repayment can be very expensive. Entrepreneurs with just ideas, not an already established business, may not get funding using this method.
Grants
In the grant funding method, you don’t have to pay it back; however, it may come with certain rules that you need to follow. Grants are free money that you can get from the government or nonprofits to support your business.
While it does not need to be paid back and no share of the business is taken, the application process is usually not easy. Also, there may be strict monitoring of how the money is utilized.
Non-Equity Partnerships
While a non-equity partnership may not provide direct monetary value, it can offer other perks such as product distribution and providing resources for business growth. You can partner with a larger company or distribution outlet that allows you to sell their products first and pay later.
Partnerships can help your business grow faster, not lose equity, or get stuck with a loan repayment. The not-so-good side of this type of funding is that certain partners may want to get involved in the decision-making of the business. Also, over-reliance on a partner may cause issues when one party wants to stop the relationship.
Choosing the Right Funding Option for Your Startup
Before you choose the right funding option that is suitable for your business, understand your business needs and your long-term goals. As a first-time entrepreneur, focus on your business growth by setting realistic goals and using the funding option that can expand your business. By taking one step at a time and making smart decisions, your startup can become a great conglomerate tomorrow.
