After attending the BE Entrepreneur’s conference earlier this month, I learned about three main ways small businesses can secure capital to grow their businesses:
1. Traditional financing through a financial institution– This is probably the most popular or most known type of way to get financing for your small business. You can go through the Small Business Association (SBA) to get assistance with this type of financing, or you can work directly with a bank or a local credit union. No matter which avenue you choose, you will be required to have good credit, good financial statements, a good business plan, and you will be taking on debt for your business.
2. Angel Investor or Venture Capitalist- This type of capital I was not as familiar with, but I know it is available for small business owners, but mainly start-up companies and mainly technology companies. Angel investors use private capital to invest in start-up companies in exchange for equity in the business, and a Venture Capitalist is a person or company that provides capital for new commercial enterprises. For angel investors and venture capitalist they are not interested in your credit, financial statement or business plan, but more interested in the business concept, the viability of your product or services, the management team for the business, and the market demand or potential demand for your product or service. Venture Capitalist require equity in your business, so you loose some percentage of control for your business.
3. Alternative sources of capital– Alternative sources of capital have become very popular now a days with platforms such as crowdfunding. Crowdfunding is the collective effort of individuals who network and pool their money, usually via the Internet, to support organizations and companies. The capital raised is by donations given in return for some item or privilege from the supported organization or company. The great thing about crowdfunding is your business is not taking on debt or giving away any equity.
No matter what avenue or avenues you choose to use to get capital for your business, be sure to do your research and BE PREPARED before you start any process to gain capital for your small business.