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Business funds available for businesses in 2012
- 1. Business Funds Available for Businesses in 2012
Posted on February 22, 2012 by Maya Pillai
Depending on the type of start-up you have, there is a financing model to optimally fund your
business. If you are running a home-based business then you can use your savings and credit
card loans. If your ambitions and ideas are larger than normal, then you may consider other ways
of funding your business. Remember to select your financial options carefully or else it can lead
to conflicts between you and your financiers which could then lead to a possible shift in control
of your business. We have put together a few ways to get business angel funds.
Approach banks for debt financing – According to a survey conducted by the Federal
Reserve, 26% of banks experienced a demand for commercial and industrial loans from
small businesses during the fourth quarter of last year. Many small businesses are
approaching their local banks and other financial institutions for debt financing. In debt
financing, if you have good credit, then banks will provide you the credit you want, but
you have to repay the amount in a stipulated time period with interest. “In addition to
showing a successful track record in managing their business, we also consider the
customer’s existing account relationship with the bank as one of many factors in making
© 2012 Apptivo Inc. All rights reserved.
- 2. lending decisions – and this can also include their personal banking experience with us,”
said Brad Baumann, Vice President at Washington Mutual.
Equity Financing – In this form of funding, private institutions or individuals are willing
to fund your venture in exchange for an equity ownership stake. They include angel
investors, venture capitalists and friends or family. Let’s take a look at each one of them.
1. Venture Capitalists – If your venture is in the second phase of a start-up and you need
funds to be injected in your business, then you should go with finding a venture capitalist.
Venture capitalists are serious players in the business world and their funding is very
time-sensitive, they will only fund a business that shows potential of “fast growth.”
However, if you can convince them to fund you along with investments, they will provide
you business networking opportunities for a better chance of success.
2. Angel Investors – Angel investors are individuals or a group of individuals who are
willing to invest in a start-up. They are called “Angels” because they are friendlier than
venture capitalist in terms of time. Along with just funding a business, they are very
patient and good mentors who value relationships. Angel investors usually make an
investment of $25,000 to $1 million. The only major drawback is they may be difficult to
find.
3. Friends and Family – You can talk to your friends and family about your venture.
There’s usually someone among them who would be interested in investing in your
business. It is always wise to stay professional when you borrow money from your
friends and relatives. It would be wise to ask a lawyer to draw a legal document stating
the amount borrowed and other terms and conditions. Remember to inform them of the
various risks of your business and also keep in regular contact with them.
© 2012 Apptivo Inc. All rights reserved.
- 3. Look out for government grants – Depending on the type of business you are in, you
can check out Small Business Administration for various government grants. There are
different types of SBA programs such as Small Business Innovation Research (SBIR) and
Small Business Technology Transfer Research (STTR) for those who venture into
technology and research. You can also check out the SBA loan programs.
Crowd-funding – This is a new source of funding that is fast becoming a vogue in the
financial industry. This is a new strategy where a network of people come together to
pool their money and other resources to support those who need funds to kick start their
dream ventures. The advantage of crowd-funding is that the money is a gift and not a
loan; therefore, it does not come under taxable income. A point worth mentioning is that
you do not have to take on financial partners.
The bottom line is, you need to choose wisely. Remember nothing is as easy as it looks; you
need to do you homework to choose the right kind of financing from the right source at the right
time.
Flickr image by 401K
© 2012 Apptivo Inc. All rights reserved.