Types of Funding

Business Funding

Business Funding

There are many types of funding options for entrepreneurship. A few funding options are credit cards, savings, Venture Capital, and borrowing money from others. There are so many options available today that it is very hard to pinpoint which funding is best for the business you’re starting.  Knowing your options is half the battle. Once you narrow down a few of the options that fit your startup’s needs seeking expert advice is ideal, Efraim Landa can help in this area. Receiving funding from the wrong source can lead to wrong representation, and even worse, money loss!

Hoping to help you narrow down different types of funding options available for your startup listed are some of the most popular funding sources:

Debt Financing

Many companies look toward banks for funding. Banks offer short, mid and long-term financing. Banks want to make sure you will be able to repay them and by require personal repayment schedule and an interest rate. Unlike other financing relationships, banks offer some flexibility. There is an option to pay off your loan early and terminate the agreement. Other funding options don’t allow for these options.

SBA 7(a) loans are an option for business funding as well. Of all the federally sponsored debt-financing programs, this is the best option and is a very popular option. The interest rate in regards to SBA 7(a) loans can vary and is dependent on the size of the loan. These loans usually result in servicing fees and profits by selling the guaranteed portion of the loan to insurance companies and pension funds.

When funded with debt financing, it is great to have a relationship established with your banker before asking for a loan. The bank will look closely at your company’s cash flow, collateral, and asset liquidity. It is crucial to have a well written business plan, and to know your financial situation inside and out. Having a relationship with the bank first will assist in any loop holes here because trust is already established.

Grants

Although grants are a very competitive funding option and there are strict guidelines to receiving grants for funding, the United States Small Business Administration’s Small Business Innovation Research (SBIR) program funds many startups, especially in the technology field. There are many state, regional, and minority grant opportunities available today.  This is free money; you don’t have to pay these grants back. Investors love the fact that grants create leverage for them. With the aid of grants and investors you can create a very good situation for your startup.

Equity financing

A very popular funding option is receiving businesses funding from private or “institutional” investors in exchange for equity in your company. This type of funding can range from friends and family, angel investors, and all the way up to the professional investors, Venture Capitalist.

Borrowing money from friends and family is a great option to fund your startup. The problem with borrowing from friends and family, the majority of us do not know people with that much extra money lying around. However, if you’re so lucky to know someone with extra money to help with your startup, this is a great situation for all. Usually borrowing this route means no interest, however, the average person doesn’t stretch out of their comfort level and only loans out approximately $50,000.

Angel investors are generous and very patient about their investments, give value by providing wisdom with their loan. Angel Investors usually lend $25,000 to $1 million. Angel Investors are harder to find and because Angel investors usually work in groups it can be hard to keep track of various interest rates.

Venture capitalists are sought after and a very popular option. If you are past the startup phase, have revenue coming in and have a quality team working for you, as well as a clear business plant and have plans to later sell the business or go public then you are ready to approach VC firms. VCs want to get their money and profits out as fast as possible. VCs now have higher standards than ever, however they lend up to tens of millions sometimes.

Bottom line; seek expert advice like that of Efraim Landa, who is a business leader in finance. Doing the work and research on your own, can end in a lot of wasted time and wasted money. Take the wrong funding option your business may never flourish. Seeking expert advice will eliminate the risk that comes from choosing the wrong financing option.

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About Efraim Landa

My name is Efraim Landa I am an entrepreneur and an expert in venture capital. I am the co founder of Effi Enterprises, a venture capital firm as well as the co founder and CEO of Gluco Vista, a company that is in the process of developing a non invasive glucose meter for those with diabetes.

Posted on October 21, 2012, in debt financing, Private Equity Financing, VC financing, Venture Capital and tagged , , , . Bookmark the permalink. 2 Comments.

  1. I would agree that choosing the wrong type of finance can sound a death knell for your business before it’s even gotten off the ground. Be careful about getting finance and try for investment first – work hard at networking every day.

  1. Pingback: Types of Funding | Offshore Business Formation Today

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