Business Insight

FUNDING OPTIONS FOR STARTUPS AND SMES

 

  1. Venture capital

This is a type of funding whereby investors provide a considerable amount of money to businesses that are believed to have a long-term growth potential in exchange for equity in the company.

 

The percentage of ownership to the fund provided by the VC firm can be negotiated, but this is usually based on the business’s valuation. They only invest in companies that have the potential of providing good returns on their investment.

 

The advantages of funding by a VC firm are their involvement in offering their expertise, hands-on mentorship assistance from their network of advisors and accelerators.

 

  1. Angel investor

An angel investor is someone of high net worth that provides funding to most startups, entrepreneurs, or small businesses, in exchange for equity in the company. These investors usually provide financial backing at the early stages of companies that may be struggling to their feet on the ground.

 

These types of investments are risky for the investor because they invest in startups or early-stage businesses that may not have a demonstrable growth. They focus more on helping startups take their first steps and offer valuable advice and guidance since they mostly have experience in the industry.

 

  1. Bank loan

Bank loans are one of the most common types of funding option business owners are known to apply. This is because they are generally a quick way to secure funding that has been trusted over centuries.

 

This kind of loan is provided at a cost, which is generally interest on the amount owed. There are other charges applicable, but that is dependent on the type of loan and the lender.

 

Although bank loans tend to be more available for established and growing businesses rather than startup businesses; this is because of the risk. Banks prefer to lend funds to companies that have a track record of profitability, which makes them more likely to be able to repay the loan and interest.

 

  1. Crowdfunding

This involves funding a business by taking small amounts of capital from a large number of people, mostly via the Internet. This kind of funding is ideal and provides a boost to small businesses at the early stage, especially businesses that don’t qualify for a bank loan or aren’t ready for an angel or venture capital funding.

 

This type of funding is best productive by using a vast network you have on different social platforms, also with the help of family, friends and colleagues reposting on these platforms to get the words out about your business, with the goal of attracting a pool of small investors.

 

  1. Grant

This is a non-repayable financial assistance or funding given by a government, organization, corporation, foundation, or trust to a business owner for a specific purpose. This kind of financing is used to support ideas and projects to provide public services and stimulate the economy. This means they can be awarded for a wide variety of activities, such as innovative research, recovery initiatives, infrastructure building or other hundreds of funding programs.

 

Although grants are free funding businesses benefit from without any repayment plan unlike a loan, they mostly come with a process of application due to the number of companies and organizations in the same industry with similar needs for money. Therefore, conducting a well-rounded research and also providing a convincing benefit of a doubt as to why your proposal should be considered should be a good focus when sourcing for this type of funding.

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