Arranging finance for small business is quite challenging. You must use your best resources and negotiation skills to get a deal that meets your requirements not only for the amount you are seeking but also for the terms and conditions of borrowing. Small business owners have two types of financing option depending on the kind of growth they target to achieve. One is the high growth financing option, and another is the standard financing option. The former method includes arranging for funds from friends and family, government small business grants, competitions and reward based crowd funding. In the latter method, you can avail loans and think about mainstream crowd funding. In this article, we have briefly talked about both.
Friends and family
You may have well-wishers in the family and friends who are willing to put in their money for your business. This source is most useful when you are seeking finance to start up business. If the people who are giving the money want to participate in the company, they can use it for equity investments in your business. Otherwise, you can take the money as a loan or gift. Regardless of the arrangement, get the process legalized with the proper document so that there is complete clarity in the agreement about the repayment pattern.
Government small business grants
If your business is in a rural area or related to projects in research and development, they there are possibilities of availing business grants offered by the government. However, these funds are not suitable for startup, and you cannot use it for meeting daily expenses. Getting government grants is not easy as it takes a lot of time and effort as the process is slow. However, the biggest attraction is that it is free money
Entrepreneurs with new business ideas are open to participating in competitions that are organized to support the needs for seed funding. Justifying the need for investment by presenting the idea is the way to initiate your claim for funds. Like business grants, this is also free money.
Rewards based crowd funding
For raising capital for business, reward based Crowdfunding is a choice for companies that are ready to raise funds from the public in return for some rewards to the contributors. The reward can be in the form of company’s product and service or some other means of recognizing the contribution. However, there is no guarantee that you will succeed because it depends on the public response.
Small businesses have to depend on debts, so borrowing is a way of life for small business owners. You can borrow money from banks, credit unions or alternative lenders depending on the amount and urgency and then pay back the money with interest in installments. Taking loans come with some additional benefits because the payments you make often qualify as business expenses thereby leading to tax deductions for business income tax.
Another attraction of loan is that the complete ownership of business remains with you, as you are not offering equities of your company.