Small Business Funding: Choosing the Right Funding Option

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Bootstrapping a new business venture is hard work. Not everyone has the capital to invest into a new business idea to get it off the ground straight away. Many people take their time to slowly build up a business, rarely taking a salary until the business is making a profit in years 2,3 or beyond.

More recently entrepreneurs are seeking new ways to fund these ventures. Traditional routes such as bank loans are becoming less attractive due to high-interest rates and defined payment terms. Some even favour using a long-term interest-free credit card which offers some more flexibility. However you choose to raise funds for your next business here are some ways you might want to consider.

Crowdfunding

Business have been using crowdfunding for years now as a marketing tool and as a way to get investment in their company from potential customers. If your business is brand new, it can be a great way to test an initial product or service in the market. Putting together special packages and rewards for different levels of investment will help you to gauge the interest in your business. If people are really willing to invest you could be onto something big.

The only downside about crowdfunding is that unless you raise the full amount you have asked for in the specified time, you don’t receive any of it. It’s therefore really important to have a good marketing plan in place to promote your crowdfunding campaign and not just launch it in the hope that people will find it.

ICO

For more established companies that are looking to grow, it’s not uncommon for them to sell shares to raise funds. This is usually done through Initial Public Offering (IPO). An Initial Coin Offering could be seen as a rough equivalent to this process and is another way for businesses to raise capital. An ICO is usually launched by technology companies who are creating a new service or app, or maybe even their own currency.

Investors can buy into this with either regular currency or cryptocurrency. In return they will receive a cryptocurrency token related specifically to the ICO. Investors then hope that this increases in value as it is essentially their investment. For offering like this it is advisable to hire the services of an ICO lawyer who will be able to guide you through the entire process and protect you in legal circumstances.

Venture Capitalists

Venture capital is more suited to smaller firms or start-up business but is usually associated with the technology industry. Investors will find innovative new companies with experimental and futuristic products in the hope that they will be adopted by the mass market.

There are a number of rounds that businesses can go through to raise venture capital. These are seed funding, series, A, series B and C, and so on. Because venture capital investment is done by private firms, funds or individuals these companies are not listed on the stock market. When a company has grown sufficiently and registered for an IPO, an investor can sell their shares for a substantial profit.