At The Startup Garage, we know that one of the most common reasons why entrepreneurs write business plans is because they are looking for funding. The process of funding a business can be challenging and confusing, with many different ways to get funding, and a variety of requirements for each of them. With this in mind, we have created The Startup Garage Guide to Business Funding E-Series. We’ll touch on all the basics of the business funding process in order to help you understand where your business fits in. Posts in this series will include 3 major sections with thorough explanations of each program.
- Debt Financing: With Debt Financing, you are borrowing money and establishing an agreement to pay back your loan at a pre-determined time frame and interest rate. While you maintain full ownership of your company with loans, you are liable to pay back the money regardless of whether your venture succeeds or not. For a startup business, debt usually comes from banks, microloan programs, private lending, personal credit cards or friends and family. We will explain each of these debt programs in detail in our blog series.
- Equity Financing: With equity financing, you sell partial ownership of your company in exchange for cash. In this scenario, the investor assumes more risks compared to a loan because if the company fails, they lose their money and are not owed any losses. However, if the company succeeds, equity investors generally receive much better return on their investment than banks and other debt investors. If you decide to pursue equity financing, there are angel investors, venture capital firms, corporate investors, private equity firms, and friends and family.
- Alternative Financing Methods: There are many other methods of financing that do not take the traditional route of debt or equity financing. These approaches can either help raise money, or help to minimize early startup costs, helping to preserve valuable assets like cash flow and company equity. These include but are not limited to Customer and Supplier Financing, Grants, Peer to Peer (P2P) Financing, and Seller and Landlord Financing.
Despite the tough economic environment there are still ways to raise money in this day and age if you have a good business that is also a good investment. No matter what method of financing you chose, we recommend that you put together a professional business plan and speak with a trusted financial adviser. Continue to check back daily here at the Startup Garage for our full Financing E-Series as we take you step-by-step through the various methods of financing available.