Updated: Dec 7, 2022
You started a business and now you need some capital but you have no idea where to start? In today’s post, we’re going to cover basic options and the questions that you need to answer to determine the right type of funding for your business.
Your Financing Options
Broadly speaking most small business and startup funding in two main categories:
Debt: you borrow money from a third-party with a plan to feedback over predefined, and usually with interest.
Equity: you get funds from selling shares in your business.
There are many subcategories within these categories, and it’s not unusual to end up with a mix of debt and equity.
The Questions You Need To Ask Yourself Before You Raise
Funding should be the wind in your sails, not an anchor holding you down. Depending on your funding instrument of choice, some funding is easier to raise than others. We also know that nothing in life is free - so it’s key that you take the following into account:
What will you be using the funding for?
How soon do you need the funding?
How much do you need to raise?
Which type of funding is most appropriate for you at this particular moment?
For what period do you require the funding?
How will you pay it back, at what intervals and against what milestones?
What collateral, if any, are you required to provide?
How expensive/cheap is the chosen form of funding?
What are the long term impacts should you default?
If plan A of funding doesn’t work, what’s plan B, C, D and E…?
What does the financial history of your business look like, and yours personally? Do you have a good credit record?
What is the return the business is expected to see from each form and round of funding?
Considerations To Help You Start Your Fundraising Journey
Not all options of fundraising are appropriate for your business. Not all are accessible by your business. If you’re a sole trader, selling equity will not be an option. If you’re just getting started, banks and early stage investors alike will find it difficult to back you. A strong track record in building and running businesses will certainly count in your favour with Angels and VCs, but not much with banks and other debt providers. Nonetheless, based on the merits of your business’ history, you will have options, so don’t give up.
In the weeks to come, we will go a bit deeper into the various aspects of financing your business, so be sure to have alerts on.
If you’re preparing to raise or currently raising your Seed or Series A rounds from Angels or Investors, check out our Funding Fix Programme that will help you prepare for each round and introduce you to investors.
‘Til next week, stay safe!
We do not provide accounting, tax, business, or legal advice. The information provided in this guide is for informational purposes only. Before taking action based on any of the provided content, it is recommended that you consult your own professional advisors.