It takes resources and money to start a business. Funding your business is one of the first and most important financial choices most business owners make. How you choose to fund your business could affect how you structure and run your business. The first step is determining how much funding you will need. Every business has different needs, and no financial solution is one size fits all. Your personal financial situation and vision for your business will shape the financial future of your business. Once you know how much startup funding you’ll need, it’s time to figure out how you’ll get it. Some of the available funding avenues include self-funding, investors and loans.
Self-funding lets you leverage your own financial resources to support your business. Self-funding can come in the form of turning to family and friends for capital, using your savings accounts, or even tapping into your 401k.With self-funding, you retain complete control over the business but you also take on all the risk yourself.
Another investment avenue is through investors that provide funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and active role in the company. Venture capital differs from traditional financing by focusing on high-growth companies, invests capital in return for equity, rather than debt, takes higher risks in exchange for potential higher returns, and has a longer investment horizon than traditional financing.
Last but not least, you can also obtain a loan and there are two main ways to do so. Through a traditional business loan with a bank or a Small Business Administration loan. The latter is a loan from a private bank but is guaranteed by the SBA, that way the bank has less risk and is more willing to finance the business. In the end, whatever funding avenue you choose, make sure you have a thorough understanding of the intricacies of your business and how it operates.