Nothing beats the joy of being your own boss or being called boss by employees under your payroll. However, running a successful business requires a carefully thought-out plan for funds to keep operations going. And whether you’re just getting started or you already have your business up and running, it pays to compare and contrast various ways to raise operating capital.
In this piece, we shall take a look at four different business funding options you can consider, highlighting some of the merits and demerits of each option.
1. Crowdfunding
While there are multiple types of crowdfunding (including donation-based and rewards-based), investment crowdfunding is a powerful new way to raise funds for your business.With investment crowdfunding, you can turn well wishers, friends, customers, and professional network connections into investors who have a financial interest in the success of your business. This can be a flexible option that empowers your community, rather than asks them for donations.
There are numerous platforms on which you can raise funds, but the majority of them are focused on specific types of startups. Mainvest, which is a Regulation Crowdfunding portal, is a good example of a platforms you can use to raise money for your startup through crowdfunding.
Pros:
You can raise capital on your own terms
It gives your business increased exposure
It is fairly easy to get started, and you can access funds quickly raise a funding target on a crowdfunding platform, and even if you don’t meet your target, you can still get a part of the capital you need.
Cons:
Crowdfunding takes a lot of work and requires you to engage your network through marketing
Because this is a regulated space, you need to be prepared with the proper documentation- if you don’t have a business plan, projections, and financials, it will take more time to get up and running
2. Look Around For Small Business Grants
If you’re lucky enough, you can get access to a small business grant. These are usually provided by the state, federal, or local government, often through the Small Business Administration or similar bodies. You can start your search by visiting the federal or state government, the SBA website, or sites like grants.com.
Pros:
You don’t have to pay the money back
Business grants can help you build credibility
It’s more likely to secure funding in the future once you get your first grant
Cons:
Grants can be competitive and difficult to find as they often favor non-profits and educational organizations
Renewal is not always certain
You may not always get the amount you need to sustain your business operations
3. Bank Overdrafts
Usually provided by banks, a business overdraft is a facility that allows you to overdraw your business account to a certain threshold. You then pay back the money over a specified time duration at an agreed interest rate. A bank OD can be a great way to keep operations afloat, say when you have some uncleared checks and invoices.
Pros:
A great way to avert cash flow issues
It can benefit your creditworthiness if used wisely
Can help ensure timely payments
Offers flexible funding to suit your needs
Cons:
Interest rates can sometimes be unfriendly
May cause a lag in the companies collection from debtors
Sometimes collateral may be required
4. Taking Out a Business Loan
Taking out a loan is inarguably the most popular way to fund a business. And under this category, you can either choose to borrow from banks, or cooperative societies, or go for government small business loans. The latter is fairly cheaper but harder to secure due to competition.
Whichever the case, it is important to consider the terms and conditions of the business loan before picking one, the interest rate, and the loan term. Based on this information, this free tool by KeeperTax can help you calculate just how much you’ll need to repay each year so you can stay ahead of your payments and plan yourself accordingly.
Pros:
Securing a loan is easy for a running business
There are multiple lenders out there willing to provide funding
Cons:
You may not qualify if you don’t have a credit history
Business loans can be hard to find with low credit rating
Besides these, there are several other ways to fund a business. For instance, you could seek angel investors or venture capitalists. You could also consider trading an asset or even tapping into home equity.