Office Badger | Small Business Funding Options
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Small Business Funding Options

25 Oct Small Business Funding Options

Small Business Funding Options

Equity Funding

INVESTORS

Advantages:

  • Opportunity to raise larger amounts of money compared to alternative options
  • No collateral
  • Many investors can become mentors due to their experience
  • No monetary repayments
  • Flexible business arrangements (in most cases)

Disadvantages:

  • Lose some control of business due to new shareholders
  • The fundraising process is time-consuming and emotionally taxing
  • Funders don’t fund non-scalable businesses
  • Huge competition
  • Investment structures can become complex

 

FRIENDS AND FAMILY 

Advantages:

  • Quick access to money
  • Low-risk funding option
  • Gain the support of those closest to you
  • More likely to receive funding from Friends and Family
  • Repayment terms will be more flexible and low-interest, or interest-free

Disadvantages:

  • If you run into difficulties with your business, this could impact your personal relationships
  • You will feel responsible if your friends or family member loses money. This concern may make you more risk averse than you should be.

 

Tip: Always put a contract in place even if it’s someone you know.

 

Loans

 

BANK LOANS (TERM LOANS AND WORKING CAPITAL LOANS)

Advantages:

  • Maintain full control of your business
  • Very secure funding option
  • Working capital loans are relatively straightforward products and are typically better options to alternative lending

Disadvantages:

  • You will end up paying a lot more money than the loaned amount in interest repayments
  • Collateral will most likely be necessary
  • It’s a long process with lots of paperwork
  • Defaulting on a loan could lead to assets being repossessed
  • Bank loans can be difficult to secure for start-ups that don’t have the necessary credit history or personal sureties and assets

 

GOVERNMENT LOANS

Advantages:

  • Lower interest rates than bank loans
  • Longer or more flexible repayment terms

Disadvantages:

  • Very strict qualification criteria
  • The application and approval process can be long and frustrating

 

ALTERNATIVE LENDERS

Advantages:

  • Swift access to finance, sometimes within a day
  • Small amounts of paperwork
  • Maintain full control of your business
  • No assets required
  • Transparent fees and flexible repayment terms
  • Less stringent qualification criteria

Disadvantages:

  • Potentially high or confusing interest rates
  • Shorter terms and smaller loan amounts, depending on how much you qualify for
  • Some alternative lenders may not be fully regulated

 

Alternative Investment Options

 

 

CROWD FUNDING

Advantages:

  • Possibility to raise money quickly.
  • Marketing for your business is already under way.
  • It’s free until you make your target where after you may have to pay a commission fee.

Disadvantages:

  • It can be time consuming and resource intensive as you need give your donors the products promised for their investment.
  • If you offer shares, you may be inundated with tons of inexperienced shareholders.

 

GOVERNMENT GRANTS

Advantages:

  • Government grants do not need to be repaid and do not accrue interest
  • You maintain full control of your business as you don’t need to give away equity

Disadvantages:

  • Paperwork intensive
  • Government may specify how you can spend the funds
  • The application and approval process can take a long time to complete
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