Various Sources of finance for the business start-up
In order to give your business idea a definite form, not only agonizing planning is required, but also the search for the right sources of finance for start-ups in small companies. For most aspiring entrepreneurs, this process can be difficult and daunting. What makes it really frustrating is finding internal and external sources of finance that do not work. The following section discusses various types of funding sources.
Types of funding sources
1. Personal savings
This is one of the best types of funding sources for starting a business, provided you can afford it. It gives you 100% control over your equity and your decision on where and how you spend your money. In addition, you are not required to just anyone. You also practice the freedom to work at your own pace.
2. Loans from friends or family
As the name implies, this money offsets a loan taken by your spouse, parents, siblings, extended families or friends. Banks claim this type of funding source as “patient capital”, which must later be returned/repaid if the business is thriving and generating steady profits.
The first and foremost of these is to borrow money from a family member or friend can ruin your relationship if your business does not work as expected or your profit level is too low to begin repaying the borrowed money. In any case, it is best to have a formal agreement signed by both parties on the agreed points in terms of money, business ownership and profit distribution.
3. venture capital
While there are many internal and external sources of finance that are suitable for all types of business start-ups and entrepreneurs, venture capital does not. From the beginning, it is important for you to be aware that venture capitalists usually only look for technology-oriented companies that have high growth potential and are in areas such as information technology, biotechnology, and communications.
Venture capitalists usually have an equity stake in the company and help in carrying out business activities. They also expect a healthy return on their investment, which is usually guaranteed at the start of their partnership.
4. Loans and credits
If you’re looking for a temporary or small investment, it’s best to raise it either through your credit cards or home equity loans. While this might seem like a simple source of funding for small businesses, they have a Beware sign on it. If you do not repay the amount on time, you can not only ruin your credit rating but also endanger your home.
Accelerators, also known as Business Incubators, provide support to start-ups at various stages of development. While there are some who offer high-tech services, there are many who help with other back-end activities such as job creation, revitalization, and hosting, as well as sharing services. Technically, incubators invite start-ups and other young companies to share the same space with their administration, technical resources, and logistics.
Receiving such funding is considered a blessing in disguise. Mostly you get access to cutting-edge industries like biotechnology. Multimedia, information technology, and industrial technology. Of all these internal and external funding sources, one thing is clear: they all have their own advantages and disadvantages. Regardless of the type of business you are planning, it is important to carefully consider these sources of financing for small businesses.