Starting a new business is no joke. It requires a lot of hard work, passion, blood, sweat, and whatnot. For a startup to be successful, funding plays a huge role. No matter if you are planning to hire a team, launch a new product, etc., funding models are important to understand. So, understanding the types of funding and the right way to achieve the goal can change everything.
So, here is a comprehensive guide to ponder upon different sources of funding for the future of your startup:
Bootstrapping
This is where founders fund the startup without any external investment. It allows for complete ownership of the company and avoids any debt. But it can lead to limited funding. Further, this can slow down the growth rate of the startup, make it difficult to attract talent and resources, etc.
Crowdfunding
It is about getting funds by enlisting the aid of family, clients, individual investors, etc. Crowdfunding can benefit from community engagement. It can also facilitate business ideas. However, this funding process can be time-consuming and involves a risk of not reaching the final funding goals.
Venture capital
This is private equity financing offered by venture capital firms or single investors to startups or businesses with high potential. This can be beneficial for injecting funding into businesses for better growth. However, venture investors expect huge returns on their investments within a proper timeframe.
Angel investors
These are individual investors that offer funding while expecting stock ownership. They offer startups proper funding without any loss of control. But angel investment also means giving up a company’s equity, diluting the founders’ ownership.
SBA loans
Small business administration loans are known to be government-backed. They are designed to help small businesses. Lenders offer These loans with the guarantee of a portion of the loan amount. This also involves a robust business plan, a great credit history, size criteria, etc. However, these loans have high interest rates, flexible usage, etc.
Debentures
This is a kind of financial security representing the investor’s loan to a particular corporation. There is no involvement of ownership stake. Debentures are a viable financing option with benefits like retaining ownership, predictable cash flow, repayment schedules, set interest rates, etc. However, with debentures, there is a high cost of capital and an increased debt burden, which complicates capital raising.
Loved ones
Getting loans from loved ones is mostly opted for by companies in their initial phase. This allows them to avoid explaining to investors that they are reliable and worthy. It can allow companies to be flexible, but it can be tough to maintain professional boundaries.
