FUNDING
At some point, you will likely need capital to grow. Your business may not be attractive to a traditional angel or VC (and you may not want/need to dilute your ownership) so you might look at debt financing.
Below we've outlined some of the options.
Also, at some point, you might want to think about selling or merging. your business. We will touch on this through an informative interview, below.
Growth Capital
FRIENDS AND FAMILY
Still your best source for both loans and equity deals. They are typically less stringent regarding your credit and their expected return on investment.
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.
DEBT
LINE OF CREDIT
A line of credit (LOC) is a preset borrowing limit that can be tapped into at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is an arrangement between a financial institution—usually a bank—and a client that establishes the maximum loan amount the customer can borrow. The borrower can access funds from the line of credit at any time as long as they do not exceed the maximum amount (or credit limit) set in the agreement.
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.
BANK LOANS
Come in all shapes and sizes, from community banks to major national banks. Institutions often want two years of tax returns, thus this may not be a good option for startups. Loans are much easier to obtain when backed by assets (home equity or an IRA) or third-party guarantors (e.g., government-sponsored SBA loans or a cosigner).
BANK ALTERNATIVES FOR MICRO-LOANS
If you're looking for less than $100,000 you may want to consider a community institution, like Accion.org a Community Development Financial Institutions Fund (CDFI). These are nonprofit organizations that can not only loan you money, but can also help with mentoring.
LEASING
The way to go if you need big-ticket items such as equipment, vehicles, or even computers. Your supplier will help you explore this.
PRIVATE LENDING
Represents a viable alternative when the bank says “no”. Private lenders are looking for the same information and will conduct similar due diligence as the banks, but they typically specialize in an industry and are more willing to take on higher-risk loans if they see the potential.
SUPPLIER CREDIT TO MEET YOUR BUSINESS NEEDS QUICKLY
A supplier credit is another financing option for your small scale business. It is a preferred choice by small business owners as the process allows them to meet their business needs more quickly. It is easy to obtain a supplier credit where the supplier of your products will allow you to pay for the goods deliver within a certain period of time like weeks or months. If you are a good debtor, supplier creditors will be happy to approve you for a larger credit line or extend your repayment terms to help you position your business more effectively while getting the needed products to increase your sales.
SBA LOANS
A Small Business Administration loan is another funding option that you can consider. It however does not provide the loan directly to a business owner but merely provides a guarantee that you will be paying your business loan to a creditor. An SBA loan can be a good backup source to help you obtain the loan that you need to fund your business regardless of the size of your business.
SECURED WORKING CAPITAL LOAN
You can use your business assets as collateral in order to apply for a secured working capital loan. You will be able to obtain a lower interest rate with a more flexible repayment term for this kind of business financing option. You will be able to obtain cash in exchange for your asset with the ability to redeem your assets upon full payment of your business loan. However, there is a danger of losing all your business assets once your creditor will seize them in case you default in paying your financial obligations to them.
CREDIT CARDS (LAST RESORT)
Can be a good tool for cash flow management, assuming you use them just for that and not for long-term financing. Keep one or two cards with no balance on it and pay it off every month to give yourself a 30 day float with no interest. And the low introductory rates on some cards make them some of the cheapest money around. Managed well, they’re extremely effective; managed poorly, they’re extremely expensive.
EQUITY
ANGEL INVESTORS
Fill the gap between friends and family and venture capitalists, who now rarely even look at investments below $1 million. Enlist a savvy financial adviser to structure the deal. There are a few resources at the end of the next section but also look at AngelList.com.
VENTURE CAPITAL
Venture capital (VC) is a form of private equity financing typically allocated to TECHNOLOGY companies with exceptional growth potential, or to companies that have grown quickly and appear poised to continue to expand.
Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.
IF YOU HAVE A PRODUCT... ALSO CONSIDER
CROWDFUNDING
The advent and relative growth of crowdfunding platforms have proven a great advancement for startups, as they give founders a unique opportunity to sell their idea directly to the consuming public. The two most popular platforms are KickStarter.com and IndieGoGo.com.