Posted on 31 May 2011
The following is a guest article from James Kim is a writer for Choosewhat.com
Small businesses now generate 64% of net new jobs, according to the U.S. Small Business Administration. As the small business community surges into its economic reign, now, more than ever, investors are willing to shell out the dough for up-and-coming entrepreneurs. Even so, finding money for your business is sometimes easier said than done. Here, we’ve provided a list of 5 business solutions and fiscal resources for your business:
1. Venture Capital
Venture capital (or VC) is, in short, capital provided to a firm in exchange for equity, or an ownership share, of the firm. According to data from research firm CB Insights, “venture capital investments rose 19 percent, to $21.8 billion in 2010 — the first annual increase since the downturn.” With venture capital on the upswing, it is quickly becoming one of the most efficient ways to get large sums of money, usually from about $500,000 to $1 million. Usually these firms require a structured business plan. The obvious disadvantage with this funding option is that you have less ownership in and control over the company.
2. Angel Investing
Angel investing is notoriously less structured than venture capital and is usually sought out in the earlier stages of company development. Angels are typically single individuals who provide capital in exchange for convertible debt or equity (like VCs). Angel investing, like venture capital, has experienced an increase recently. The number of angel investors has surged 22 percent in the last year, according to the National Venture Capital association.
3. Debt Financing
Debt financing includes soliciting a bank for loans with a repayment schedule at a fixed interest rate. Banks often consider previous history with other financial institutions and entrepreneurial experience when dictating whether or not to issue a loan. The upside to debt financing is that you don’t have to give up equity and you can thereby stay in full control of your business.
While many people think it is nearly impossible to receive a grant for their small business, it is always worth a shot. This funding option will, like VCs, require a business plan. Usually these grants can be found at the state level, but government operations such as the Small Business Innovation Research (SBIR) also provide grants. It never hurts to check out these “free money” options.
5. Friends or Family
At the earliest stages of company development, it may be a good idea to approach the people you trust most, like your friends and family, for funding before asking the bigwigs. If you don’t need enormous amounts of cash, friends and family are always a viable option. It’s always a good idea to write an informal contract for these exchanges so you can avoid potential future conflicts.
So there you have it, the 5 most common ways to get cash. Remember: always analyze what stage of company development you’re in, how much money you need, and if you’re willing to give up equity before picking the funding option that best suits your small business.
James Kim is a writer for Choosewhat.com. ChooseWhat is a company that provides product reviews and test data for business services and products. Their goal is to help small companies make informed buying decisions on business solutions that help their business.