Financing Your Business
There are many ways to finance a business. The following information was made available fromt www.businessfunding.com
1. Angels
Most venture capital funds will not consider investing in anything under $1 million to $2 million. Angels, however, are wealthy individuals who will provide capital for a startup business. These investors have usually earned their money as entrepreneurs and business managers and can serve as a prime resource for advice on top of capital. On the other hand, due to typically limited resources, angels usually have a shorter investment horizon than venture capitalists and tend to have less tolerance for losses.
2. Private Placement
An investment bank or agent may be able to raise equity for your company by placing your unregistered securities with accredited investors. However, you should be aware that the fees and expenses associated with this practice are generally higher than those that come with venture and angel investors. You will likely receive little or no business counsel from private investors who also tend to have little tolerance for losses and under-performance.
3. Initial Public Offering
If you are somehow able to gain access to public equity markets than an initial public offering (IPO) can be an effective way to raise capital. Keep in mind that, while the public market’s high valuations, abundant capital and liquidity characteristics make it attractive, the transaction costs are high and there are ongoing legal expenses associated with public disclosure requirements.
4. Bootstrap Financing
This method is intended to develop a foundation for your business from scratch. Financial management is essential to make this work. With bootstrap financing you’re building a business from nothing, which means there is little to no margin for error in the finance department. Keep a rigid account of all transactions and don’t stray from your budget.
A few different methods of bootstrapping include:
Factoring, which generates cash flow through the sale of your accounts receivable to a “factor” at a discounted price for cash.
Trade Credit is an option if you are able to find a vendor or supplier that will allow you to order goods on net 30, 60 or 90 day terms. If you can sell the goods before the bill comes due then you have generated cash flow without spending any money.
Customers can pay you up front for your services.
Leasing your equipment instead of purchasing it outright.
5. Fund From Operations
Look for ways to tweak your business in order to reduce the cash flowing out and increase the cash flowing in. Funding found in business operations come free of finance charges, can reduce future financing charges and can increase the value of your business. Month-by-month operating and cash projections will show how well you have planned, how you can optimize the elements of your business that generate cash and allow you to plan for new investments and contingencies.
6. Licensing
Sell licenses to technology that is non-essential to your company or grant limited licensing to essential technology that can be shared. Through outlicensing you can generate revenue from up-front fees, access fees, royalties or milestone payments.
7. Launch Customers
Find out if you have any customers willing to fund research and development in exchange for the product produced.
8. Vendor Financing
Similar to the trade credit related to bootstrap financing, vendors can play a big role in financing your new business. Establish vendor relationships through your trade association and strike deals to offer their product and pay for it at a date in the near future. Selling the product in time is up to you. In hopes of keeping you as a customer, vendors may also be willing to work out an arrangement if you need to finance equipment or supplies. Just make sure to look for stability when you research a vendor’s credentials and reputation before you sign any kind of agreement. And keep in mind that many major suppliers (GE Small Business Solutions,IBM Global Financing) own financial companies that can help you.
9. Sweat Equity
You may be able to find people willing to work for stock options in exchange for a lower salary or a delay in compensation until a later date.
10. Self Funding
Search between the couch cushions and in old jacket pockets for whatever extra money you might have lying around and invest it into your business. Obviously loose change will not be enough for extra business funding, but take a look at your savings, investment portfolio, retirement funds and employee buyout options from your previous employer. You won’t have to deal with any creditors or interest and the return on your investment could be much higher.
However, make sure that you consider the risks involved with using your own resources. How competitive is the market that you are about to enter into? How long will it take to pay yourself back? Will you be able to pay yourself back? Can you afford to lose everything that you are investing if your business were to fail? It’s important that your projected returns are more than enough to cover the risk that you will be taking.
11. SBA Loans
An independent agency of the Executive Branch of the U.S. government, the Small Business Administration offers several different loan programs. The SBA partners with private and other institutions as a guarantor of loans to help Americans start, build and grow businesses.
12. SBIR and STTR Programs
Coordinated by the SBA, SBIR (Small Business Innovation Research) and STTR (Small business Technology Transfer) programs offer competitive federal funding awards to stimulate technological innovation and provide opportunities for small businesses. You can learn more about these programs at SBIRworld.com.
13. State Funding
If you’re not having any luck finding funding from the federal government take a look at what your state has to offer. There is a list of links to state development agencies that offer an array of grants and financial assistance for small businesses on About.com.
14. Home Equity Loans
If you own a home why not borrow against it? Home equity loans are typically used to finance major home repairs, medical bills or college education but you can also use them to boost your business.
15. Community Banks
These smaller banks may have fewer products than their financial institution counterparts but they offer a great opportunity to build banking relationships and are generally more flexible with payment plans and interest rates.
16. Microloans
These types of loans can range from hundreds of dollars to low six-figure amounts. Although some lenders regard microloans to be a waste of time because the amount is so low, these can be a real boon for a startup business or one that just needs to add some extra cash flow.
17. Finance Debt
It may be more expensive in the long run than purchasing, but financing your equipment, facilities and receivables can free up cash in the short term or reduce the amount of money that you need to raise.
18. Silent Partner
You can enter into an agreement with a silent partner that will provide financing without participation in the management of the business in return for a share of the profits. Web sites like Prosper.com are available to link borrowers with lenders.
19. Friends
Ask your friends if they have any extra money that they would like to invest. Assure them that you will pay them back with interest or offer them stock options or a share of the profits in return.
20. Family
Maybe you have a rich uncle or a wealthy cousin that would be willing to lend you some money get your business running or send it to the next level. Again, make it worth their while by offering interest, stocks or a share of the profits.
21. Form A Strategic Alliance
Aligning your business with a corporation can produce funding from upfront or access fees to your service, milestone payments and royalties. In addition, corporate partners may be able to provide research funding, loans and equity investments.
22. Sell Some Assets
Find an interested party to buy some of your assets (computers, equipment, real estate, etc…) and then lease them back to you. This provides an instant source of cash and you will still be able to use whatever assets you need.
23. Business Lines of Credit
If your business has positive cash flow and has proven that it will cover its debts then you may be eligible for a business line of credit. This type of financing is a common service offered by most business banks and serves as business capital, up to an agreed upon amount, that you can access at any time.
24. Personal Credit Cards
Using personal credit cards to finance a business can be risky but, if you take the right approach, they can also give your business a lift. You should only consider using this type of financing for acquiring assets and working capital. Never consider this to be a long-term option. Once your company breaks even or moves into the black, ditch the credit cards and move toward traditional bank financing or lease agreements.
25. Business Credit Cards
Business credit cards carry similar risks as personal credit cards but tend to be a safer alternative. While the activity on this card goes toward your credit report, a business credit card can help you to build business credit, keep your business expenses separate from your personal expenses and can make tax season easier to manage.
REFERENCES
1. More Business – A Venture Capital Analysis
2. Score – 5 Tips on Vendor Financing, The Best Ways To Finance Your Business
3. About – 6 Steps To Effective Small Business Credit Card Management (Small Business Information)
4. Business Finance – Bootstrap Financing, Business Line of Credit, Silent Partner
5. Entrepreneur – Using Credit Cards to Finance Your Startup
6. Globes Online – Alternatives to Venture Capital
7. Corp21 – Alternatives To Venture Capital Funding
8. Washington Post – Innovators Find Alternative To Venture Capital
9. Wiggin and Dana – Alternative To Venture Capital Financing
10. Trizle – Why Bootstrap Financing
11. Startup Nation – Creative Business Financing Options: Self-Funding
