The current global economic landscape provides a great environment for start-ups and their sustainability. Creativity and unconventional thinking are encouraged in today’s scenario with respect to Financing. Whenever a slump in the economy is observed, small businesses have a huge role to play in the economic recovery by acting as important drivers for hiring. However, it is a known fact that hiring for small businesses like other operations requires capital.
In practice funding for small businesses cannot be expected from a single origin or source, and it cannot be harnessed all at once. Funding for small businesses has to happen by phasing it out over a period of time and also that the funding is accomplished through various sources. Irrespective of whether my small business is looking out for seed money or seeking funds for expansion. I have given the best ways to fund your small business:
1. Do it yourself
I have to start off by mentioning the most obvious and frequent form of funding a small business, which is to bootstrap. This refers to self-funding a business’s projects for a considerable amount of time to sustain a business until more viable funding opportunities become available. The best way I would recommend anyone to go about this is to make use of money from savings accounts and even credit cards that offer zero interest schemes. I would also recommend using personal assets of significant value to finance the business in question. This is a great option for those who have absolute and unwavering faith in the success of their business venture. I also have to mention once this is done it will inspire more confidence in future investors in the small business.
2. Friends, family, and Close Colleagues
I would be remiss if I forgot to mention the second most popular form of small business funding which is through friends, family, and close colleagues. There is no better way to raise start-up capital for your small business than to pitch your business as a viable business option to trusted folk such as friend’s family and colleagues. This will ensure fast and steady funding with comfortable deadlines for delivering returns. At the very least friends, family and close colleagues will require lesser amounts of convincing to invest in the small business. The only disadvantage here is the risking of interpersonal relationships with people known over many years socially, should the small business ever fail! This can be avoided by structuring the pitch for investment as a high-interest loan for a fixed period. I highly recommend all involved parties consult sound legal counsel before entering into any agreement or contract.
3. Small business loans
I have to say most small business owners flinch at the mention of this option for funding a small business. This is because people are still imprinted with the traditional image of the bank as a cold, inflexible and last resort option to funding. In today’s scenario, this is a grossly misrepresented image of banking authorities as they stand today towards giving out small business loans. However, in the current start-up friendly economy, there are a lot of sops, subsidies, and benefits offered to start-ups hoping to launch a small business. The advantages of this method are that a business owner will not have to give up a piece of the business as equity or stock and will only have to manage the timely interest to be paid to the bank. This is known as debt financing and has a great ratio of reward to risk provided a thorough analysis is done on business needs and finance goals.
4. Angel investors and Venture Capital Firms
I would highly recommend this as the best way to get funding for a small business as this has so many advantages and very few disadvantages. In this method, I as a small business owner will have to give up a part of my business as equity or stock to angel investors or venture capital firms who will give out large amounts of funding or money. The advantage here is as a small business owner I will have access to a lot of funds in a relatively short period compared to other methods of funding. However, the downside to this kind of access to large funds is that I will have a considerable fiduciary responsibility towards the venture firms or angel investors who invest in my business. This means I would have to act in the best interest of the investors, as well from time to time if they so desire. There is also the initial obstacle of attracting angel investors or venture firms. I would have to know my business plan, back up my business valuation with realistic growth projections and business forecasts and more.
While there are many ways to increase funding for your small business, I as an entrepreneur would pick what method would suit me best and strategize accordingly. No method of funding mentioned here is universal with everyone having to find out for him or herself what suits their business best. Best of luck in your start-up!
Featured Image: Pixabay.com