Your Business Funding Solution:
Capturing Multiple Streams of Financing

Your business funding solution would be so much easier if all you needed were one answer. But you need lots of answers. There are lots of questions involved in financing your business. Let's start with some of the basics.

First, how much do you need? Really. Bottom line.

I cannot begin to tell you how many companies write business plans requesting $1 million or $10 million, without any justification for needing that amount of money at all.
Realistically, you must prove your concept first before anyone will put up that kind of money.

So, what do you need to get from Point A to Point B? Do you need some sort of initial capital for things like inventory, marketing, physical facilities, incorporation expenses, etc. ? What about personnel? Marketing studies? Product development?

Question: Where you are now?

Question: Where you want to go?

When exploring your funding options, there are several factors to consider:

Are your needs short-term or long-term?
How quickly will you be able to pay back the loan or provide return on their investment?
Is the money for operating expenses or for capital expenditures that will become assets, such as equipment or real estate?
Do you need all the money now or in smaller pieces over several months?
Are you willing to assume all the risk if your company doesn't succeed, or do you want someone to share the risk?

The answers to these questions will help you prioritize the many business funding solution options available.

Fundamentally, there are two types of business financing: Debt Financing and Equity Financing.

Debt Financing

Debt financing is money that you borrow and agree to pay it back in a particular time frame at a set interest rate. SBA loans and other bank loans are typically debt financing, and are a very common business funding solution.

However, even if your business fails on Day 1, you still owe the money.

Realistically, too, you will probably have to personally co-sign any debt that your company incurs, especially bank loans.

Equity Financing

Another common business funding solution is equity investment, such as provided by angel investors and venture capital. The premise of equity financing is that you sell partial ownership of your company in exchange for cash. The investors assume all (or most) of the risk. If the company fails, they lose their money. But if it succeeds, they typically make much greater return on their investment than interest rates.

Because investors take on a much higher risk than lenders, they are typically far more involved in your company. This can be a mixed blessing. They will likely offer advice and connections to help grow your business, which can indeed be good if they know much about your business.

Equity financing means that you and your investor(s) need to have the same goals in mind. If you want a long term investment, and your investor is looking to get out in 2-3 years, it may not work.

This is a very sophisticated type of investment. Be sure you have good legal advice before looking for equity capital.

Variations on a Theme

It is far more common that one solution doesn't work. A combination of debt and equity is typically far more practical, and is a more accessible business funding solution. We explore dozens of financing options on the web site. Here are but a few of them:

Friends and family are often your best source for both loans and equity deals, especially for smaller companies. One caveat: structure the deal with the same legal rigor you would with anyone else or it may create problems down the road when you look for additional financing. Prepare a business plan and formal documents--you'll both feel better, and it's good practice for later.

Credit cards are a useful tool for cash flow management, assuming you use them just for that and not for long-term financing. Keep one or two cards with zero balance and pay off the balance every month. This will give you about a 30 day float. Be careful, though. Many credit cards now charge interest from the date you use the card, NOT from the date they bill you. Managed well, credit cards can be effective; managed poorly, they're extremely expensive.

Bank loans come in all shapes and sizes, from microloans of a few hundred dollars, to million dollar loans by major national banks. The bigger the loan, the more important is the backing by assets. For smaller companies, your home equity may be used as collateral, or even your IRA. If you obtain a line of credit rather than a fixed-amount loan, you don't start paying interest until you actually spend the money.

Leasing is the way to go if you need big-ticket items such as equipment, vehicles, or even computers. Your supplier will help you explore this.

The common denominator in all of these is that "the further you can go on your own, the better off you are." Explore all bootstrapping options first. Take the company to the limit of your ability.

There are many channels available to you to raise capital. All of the above approaches have numerous variations. Put together a solid business plan, talk to a financial adviser, and just start asking. Someone will eventually say "Yes".

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