Business start up funding
Financing For A New Business
Just like human infancy, business infancy will require a lot of support through startup business financing. There are different sources of startup business financing for these that need funds. Funding can either be generated from the individual’s own resources or from financial and non financial investors and lenders.
It is prudent for an “idea owner” to seek the best possible sources for startup financing is always the make or break stage of a business. These sources will broadly rotate around debt and equity financing. More specifically, one will look to self financing, angel investors, venture capitalists, friends, family, banks and micro financing loan institutions. Let us briefly discuss these various options for the financing of a new business.
Business start up finance through self financing
Self financing of businesses is considered to be one of the safest ways for these starting out as business people. Indeed, investors who use their own funds tend to be more hands on managers as opposed to laid back owners. Some of the ways that you can self finance include:
- Tapping on personal savings that have been made over time;
- 401(K) which is a scheme that is sponsored by employers under section 401 (k) of the Internal Revenue Code in the United States. This is equal to most of the employer sponsored retirement plans provided for under legislation in many countries outside of the United States;
- The use of retirement savings;
- The use of credit cards;
- Using the equity (the difference between the actual value of the home and any loans outstanding) in your home to finance your new business; and
- Tapping into personal assets through sale or mortgaging to access business financing for start ups.
Financing For A Start Up Business
Financing a start up business through angel investors is a plausible idea. This basically means approaching individuals with an interest in the stake of the business to offer funds. They may be family members, friends or these acquired through referrals. Check this; Richard Branson commenced the building of his Virgin business empire by getting financing from his aunt! Their mode of funding is similar to that of venture capitalists.
You, as an investor, can also choose to get business start up finance through professional organizations that invest in growing industries with the motive of making profits. These organizations, alternatively called Venture Capital funds (VC), are risk takers that are in a position to assist the business through their industry specific knowledge and experience. The greatest side effect of venture capitalists and angel investors is their usual inhibited desire to exert major managerial control over the business.
The above three methods (self financing, angel investors and venture capitalists) collectively form what is known as equity financing.
Business startup loans form a large proportion of financing of businesses. This is attributable to the extensive advertisements that are conducted by commercial banks across the globe. In fact, nearly all investors will, unless otherwise informed, use loans as startup financing. This method of financing of startups is also known as debt financing.
Prepare
A general piece of advice for start ups on business financing can be gotten from the teachings of Napoleon Bonaparte. He said “prepare, prepare and prepare”. It is only through adequate planning that business financing for a start up will work.
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