Some businesses can be built from your basement, some with less than that. Most business require a large amount of capital to have a fighting chance in this competitive market. Regardless if you are building the next killer web app, or developing a new publication you hope to distribute across the county, knowing your options for funding will help you find the right source.

Equity Financing

The most basic form of funding is called “equity financing,” and it really is the most risky for a business owner. It simply means that the funding comes from the business owners contributing capital to buy “shares” of the company. In return for the shares of the company the contributor gains a percentage of the profit.

What this means
Either you, or private investors can buy a portion of your company. Then in return, you get paid a portion of the profits based on the percentage of ownership you have. So you could get funding by selling 30% of the business in terms of stock, and realize that 30% of the profits will be paid to the part owners of the company.

Often times these single people willing to invest in the company are referred to as angel investors.

Pro’s
Often you can receive large sums of money
no interest or monthly payments

Con’s
Someone owns a portion of your company
Percentage of profits are taken, regardless of how large the business gets, or how small the initial investment was

Loan Finance

Loan financing is when you borrow money from a finance company, often times this is a bank. In this situation you pay the loan off over a specified amount of time plus interest, which is how the bank/company makes money.

The interest will be determined based on the perception of risk, and many times you will have to offer something as security/collateral in the invent of default.

Pro’s
No split ownership of the business
Only pay interest, not percentage of profits

Con’s
Harder to make work when cash flow is limited
Bank/Company can actually “own” your equipment purchased until your last payment
Harder to arrange for new businesses

Grants

A grant can be one of the best ways to acquire funding, however it also is one of the most difficult. A grant is awarded to businesses by a party looking to simply advanced a field, location, or industry. Grants do not have to be repaid, and there is no interest. You simply have to abide by the terms and conditions.

To get a grant you have to find one applicable to your business or project, and apply for it. The grant process often takes several months, so you better start cracking early.

Pro’s
No payback
Full/Partial Funding

Con’s
Hard to find
Hard to get even if you do find

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