Starting your own business is exciting and challenging. Unless you have a large personal savings, or are independently wealthy, chances are you will need to secure funding for your business. There are several options for you ranging from business loans, venture capital, government grants, tax credits, to personal credit cards. We'll look at each of these in greater detail to assist you in determining the best source of funding for your business.
Depending on the nature of your business you might consider a grant. A grant is usually partial funding for a business that you will only need to pay a portion or none back to the lender. Grants are provided to individuals and businesses by the government, regional development agencies, the European Union, business link, chambers of commerce, universities and even charities. Certain industries or locations that are in need of revitalization, businesses that focus on research and development, inventors, farming, and others are all eligible for grants. Typically there are terms to the grant that you must adhere to in order to keep the fund and / or not repay the money.
Venture capital is another common form of business funding. This type of funding is done by companies, trusts, or individuals, also called 'Angel Investors', that provide money, start up capital, or loans to businesses as investments. Often its is given to existing companies that are doing well that seek to expand and have a clear business plan with a long term growth potential for both the business and the investor. Often times the venture capital trust or firm will buy out 25-55% of the business. "Seed money" is also provided by venture capitalists, usually with the investor accepting a higher risk with a potential for higher yield.
Another form of business funding is tax credits granted by the government that act as an incentive to companies to stimulate economic growth in various industries. These include businesses that focus on energy efficiency, research and development, and agriculture.
If used wisely, personal credit cards can be used to fund your business. The drawback to using this type of funding is if you are not able to manage your debt it will affect your credit rating. Should you decide to use your credit card, it is recommended that they are used for non-essential business items, not for operating expenses or major purchases like a car or equipment and they are paid off each month.
Business loans are one the most common forms of funding for start up capital, to help expand your existing business, or sometimes to refinance debt. The type of business loan to apply for depends on what your needs are. Small businesses can seek funding with a small business loan and many are available for specific industries. Although not all small businesses will be turned away by banks, most banks prefer larger or well-established businesses. If you are a small business or a start up, you will need to have excellent documentation, a business plan, and sometimes contractual (such as home equity) to secure a loan from a bank. Business loans are also available for small amounts, called "micro" loans for economic development for a certain geographical areas and for specific industries.