Starting a business isn’t just about finding an idea that will appeal to your target market – you also need to make sure that you have the funds to bring your ideas to life and make it into a reality. The good news is that there are plenty of small business funding options that you may be able to take advantage of. But when you’re picking a funding source, it’s important to consider the impact that it could have on you and your business across various dimensions. Here are some things to keep in mind when choosing funding for your small business.
#1 Intensity
Experts advice on weighing up your business funding options by considering how ‘intense’ they are. Intensity measures how much it is going to cost you in the future; low intensity financing is going to cost you less over time whilst high-intensity options are likely to have you repaying the funds long after they are spent. The intensity of a financing option can be determined by two main factors; how difficult it is going to be for you to get the funds and the overall cost to your business over time. Low intensity financing tends to be more difficult to get but will cost your business less, whilst high intensity financing will cost you more in the long run but is usually far easier to obtain.
#2 Type of Funding
There are two main different types of funding that you may wish to consider for financing a small business idea. These are:
- Debt financing – borrowing money that you will need to eventually pay back, and
- Equity financing – when you sell partial ownership of your company in exchange for funds.
Think about the type of business that you have, how much money you expect it to make in the future, and the amount of funding that you need in order to determine which of these funding options is the best choice for you.
#3 Loan Size
Another factor that you will need to carefully consider is the size and term of the loan that you want to borrow to fund your business idea. Perhaps you have managed to save up enough of your own money to invest, or are starting a low-cost business idea – in this case, a short-term, working capital loan may be the best option for you to provide you with just enough of the funds that you need.
On the other hand, if you’re starting out with very little funding of your own and your business is going to take a lot of investing to get to where you need it to be, a larger, long-term business loan is likely the more suitable choice. You can find out more here about small business vs working capital loans to determine which would be the best choice for you.
Once you’ve weighed up these options and determined which type of funding is the most ideal for your business, you can start looking into various options such as bank loans, angel investors, crowdfunding, small business loans and more.
Infographic created by Donnelley Financial Solutions, an SEC reporting software company