Which Type Of Business Funding Is Right For You?

Acquiring funding for a business can be a very daunting prospect. There are so many different kinds of funding available, and so many different sources to apply to, that you may feel overwhelmed. Thankfully, you can narrow down which funding might be the most appropriate one to go for based on what type of business you’re running and various other factors relating to your business plan. Here are some of the most common ways that entrepreneurs fund their businesses, along with some situations where that kind of funding might be the right avenue for you!

A business loan

Who it’s right for: Most small businesses and entrepreneurs

A business loan is the way that most businesses go when they’re looking for funding. There are various different kinds available: you could try government startup loans, for example, or you could look into small business loans, which many banks and lenders will provide. The terms of these loans tend to be favourable, but lenders will want to see a concrete business plan that demonstrates you have a plan for the money and aren’t just looking to fund a pie-in-the-sky venture.

What you need for this kind of funding: A solid business plan; a good idea; a good credit history

Personal funding

Who it’s right for: People with more elaborate or unconventional business ideas; people with good starting capital

If your idea is a little too out there for business loans, you may wish to consider personally funding your business. You could dip into your savings in order to achieve this, or you could consider taking out an unsecured personal loan if you have enough faith that you can pay it back. Personally funding your business means you aren’t beholden to any lender or bank, but it also means taking out a sizeable chunk of your capital, so make sure to only do this if you’re confident that a potential loss won’t affect you too badly.

What you need for this kind of funding: A good amount of starting capital; faith in your business; the willingness to apply for personal loans if necessary

Crowdfunding

Who it’s right for: People with a customer-facing business; people with ethical business ideas

Crowdfunding isn’t right for everyone, and it’s important to state that upfront. Your business needs to have a people-facing nature if you want to go with crowdfunding, and it also helps to have an ethical slant to your idea. You can amass a lot of money very quickly if you crowdfund, but be aware that you’re going to be held to a higher standard than even some lenders will hold you to. People expect to see a return on their investment, and they expect you to be accountable; if you disappear with the money and don’t talk to them for weeks, they’ll be furious.

What you need for this kind of funding: Good customer service skills; an ethical idea; a very solid plan of where you’re going to go with your business

Angel investors

Who it’s right for: People who don’t mind sharing a little of their business; people who want to avoid big companies for lending

If you’ve ever seen the British show Dragon’s Den, you’ll know what angel investors are. They’re people who have capital to invest and are willing to do so for entrepreneurs in exchange for a 10-20% equity in the business (the amount can vary, but that’s the average). Angel investment can be an excellent option if traditional business loans aren’t for you, but be aware that angel investors will often want a certain degree of control over the direction of the business. With their stake, they may feel they are entitled to a say in how the business is run, so you’ll have to contend with that.

What you need for this kind of funding: A co-operative attitude; a willingness to cede a certain level of control

Venture capitalists

Who it’s right for: People with an innovative idea in a growing industry; people who expect their business to grow quickly

Venture capitalists usually put their money into businesses with big growth potential. Traditionally, this has meant that the tech space sees a lot of venture capital investment, but any rapidly growing industry is naturally going to attract this kind of funding. If you decide to go for venture capitalist investment, be aware that your investors are going to want to see pretty rapid evidence of growth in your business. If they don’t, they’re going to be upset, and they’ll probably take their money elsewhere. You’ll need to be on top form to please the venture capitalists.

What you need for this kind of funding: A bulletproof business plan; an idea within one of the fastest-growing industries

Series funding

Who it’s right for: Businesses with a long-term plan; people who don’t want to stop at a single round of funding

As the name implies, series funding involves “rounds” of raising capital. There are five different stages to series funding in alphabetical order, starting with A and moving through to E. Series A is the initial stage where you’ll raise your first bit of capital. Moving on to B means you’re doing well, and series C is where most businesses will finish raising their money. D and E are “special intervention” stages, so you may wish to avoid these. Series funding is good if you’re confident, but you’ll need to stand up to a lot of scrutiny.

What you need for this type of funding: Lots of confidence in your idea; a proven business track record