Funding is the most crucial step in starting a business and the biggest challenge as well. A startup entrepreneur will find it extremely difficult to pool up the cash he needs to start a business, because as long as he is not able to prove how valuable his business idea is, no investor will be willing to put his money in.
Equity vs. Debt
If you have all the amount of money you need to start up your business οn your wallet, there is no doubt that it's going to be a smooth ride ahead. But if you do not have the cash you need, what would you do? Luckily, there are more than enough options out there to fund your new company, but finding the right source to get your funding done takes careful research, amazing negotiation skills, and above all, a strong commitment to start your business.
Always make sure you have a good business plan that shows to the investors that you know exactly what you are doing as well as the potentials of your business. Follow-up your business plan with thorough knowledge from resources and a determination to make your business a reality.
Different types of funding options?
Specifically, there are two types of business financing:
Financing through equity means, you sell a partial ownership of your business in exchange for cash. The investors agree to go through the risk if the company fails. On the other hand, if the company succeeds, investors make greater return than interest rates. So equity financing is the most expensive way if your company is already successful, but is the most affordable way if it's a startup.F
inancing through debt means, you borrow money from individuals and agree to pay it back in a particular time frame with a specified interest rate. You owe the money to the lender whether your business succeeds or not. A very good example would be to bank loans that need to be repaid back regardless of the business doing well or not.
Since investors are at much higher risk when they buy equity of a company, they are typically more involved in bringing the company up. This can be a blessing in disguise. They are likely to give positive advice as well as offer connections that would help your business grow.
But how do I choose the best financing option?
Choosing the best financing option for you can be tricky, and if you do not want to waste your money on ‘good for nothing’ agencies, the most affordable way is to use the tool offered by Valuater that gives you a complete checklist evaluating the benefits and the disadvantages of all possible financial options that you have to source from, your initial capital.
It may not be possible for an individual to know everything about economic conditions, auto financing options, legal regulations, formalities involved and needed approach. However, the tool is capable of giving you an accurate analysis based on all these above factors. In that way, you can be sure that you have professional advice on choosing the best finance option.
There are several financial options about your business. Picking the right one can define you as a successful entrepreneur.