Funding is the most crucial step in starting a business and the biggest challenge as well. A startup entrepreneur will find it extremely difficult to pool up the cash he needs to start a business, because until he does not prove his business idea, no investor will be ready to put their money in.
Equity vs. Debt
If you have all the money you need to start up your business in your wallet, there is no denying that it's going to be a smooth ride ahead. But if you do not have the cash you need, what do you do? Fortunately, there are more than enough options out there to fund your new company, but finding the right source to get your funding done takes careful research, amazing negotiation skills, and above all, a strong commitment to start your business.
Always make sure that you have a good business plan that shows investors that you know exactly what you are doing as well as the potential of the business. Follow-up your business plan with thorough knowledge from resources and a determination to make your business a reality.
Different types of funding options?
Essentially, there are two types of business financing:
Financing through equity means, you sell a partial ownership of your business in exchange for cash. The investors agree to go through the risk if the company fails. On the other hand, if the company succeeds, investors make greater return than interest rates. Simply put, equity financing is the most expensive way if your company is already successful, but is the most affordable way if it's a startup.
Financing through debt means, you borrow money from individuals and agree to pay it back in a particular time frame with a specified interest rate. You owe the money to the lender whether your business succeeds or not. A very good example would be bank loans that need to be repaid back irrespective of the business doing well or not.
Since investors are at much higher risk when they buy equity of a company, they are typically more involved in bringing the company up. This can be a blessing in disguise. They are likely to give positive advice as well as offer connections that would help your business to grow.
But how do I choose the best financing option?
Choosing the best financing option for you can be tricky, and if you do not want to waste your money on ‘good for nothing’ agencies, the most affordable way is to use the tool offered by iGoStartup that gives a complete checklist evaluating the benefits and the disadvantages of all possible financial options that you have to source your initial capital.
It may not be possible for an individual to know everything about economic condition, auto financing options, the legal regulations, the formalities involved and the approach needed. However, the tool is capable of giving you an accurate analysis based on all these above factors. This way, you can be sure that you have professional advice on choosing the best finance option.