Different Types of Funding Exclusively for the Entrepreneurs
Young entrepreneurs are always on the lookout for capital to support the cost required to start a business. Today funding options are available in plenty so to raise funds will be confusing and overwhelming. Complicating the issue further the funding type that an entrepreneur pursues will rest on their company's needs, stage and the certain milestones they desire to attain.
Types of Funding
It is vital to learn about the various funding choices as this will offer the entrepreneur the foundation, they require for creating their customized fundraising strategy. Below is a quick overview related to the common funding types available for entrepreneurs.
- Bootstrap- This is not fundraising in the most real sense, but at times the finest funding choice is not seeking any funding at all yet it is best to cut corners in fact wherever possible and work to build the company from one's savings. Bootstrapping along with saving one's money will also help them in emphasizing execution as well as building traction devoid of any outside interference. It also means to avoid dilution and enjoy bigger profit margins. To know more, contact Liberty Lending US.
- Debt Funding- This is another viable choice when it comes to funding for an entrepreneur. Through debt funding, the entrepreneur can borrow cash which they need to pay back no matter their company is making any profit or not. While the entrepreneur may select to incur debt from family, friends or acquaintances, there are many more debt funding options which they can pursue of which the most common are as follows,
- Venture Debt- This is similar to equity in many ways but is only within the short-term. It is during the long term the difference will be experienced. The entrepreneur needs to repay the debt at some point irrespective of the performance of the company. In the case of term loans, the repayment terms typically are multi-year of which 3 years is the most common. But in case of credit of non-formula lines will have a short-term of merely a year.
- Asset Loan- Equipment is used as collateral for this loan. If the entrepreneur requires capital equipment in a considerable amount, they can finance such purchases. The asset loan at all times will not need the purchased equipment to tie with the funding they receive. At times they can also use this loan for funding growth in different areas. Such debts are challenging to get hence this is not seen often yet is worth seeking provided they have equipment needs.
- AR Line- Should a company have accounts receivable it will be an excellent funding choice- less risky and cheaper compared to other types of venture debt. Today lenders are available in plenty that is ready to finance the accounts receivable. If the entrepreneur experiences a gap in the working capital during the time it requires in gathering and making payments, they can leverage their billed accounts receivable that too at a discounted rate. Simply put the entrepreneur is taking out the loan on payments that is yet to be cleared.
- Small Business Administration Loan- Bank loans are also guaranteed via SBA or Small Business Administration with a low rate of interest as compared to loans which the SBA does not guarantee. This guarantee, however, does not indicate that the entrepreneur will be off the hook in case his business fails but still return the loan. A key benefit of choosing this loan is access. Having SBA's backing the entrepreneur's loan may be approved which otherwise they would not have received.
- Equity Funding- This is an umbrella word which refers to different means to finance one's company where the money comes from exchanging shares of their stock. For increasing equity capital there are a couple of methods available. Depending on how the entrepreneur raises this money they will give up somewhere between 1-100% of their business. The equity rounds will include the following,
- Seed- As per the name, seed financing is a small sum of money that a business requires early on for getting started. Companies that seek this form of funds usually are within the concept stage so need minimal capital infusion for covering expenses till they can begin earning revenue. This form of funding can also work wonders to attract bigger investors for future money. As this capital is small and is an investment that has high risk, generally coming from small angel investors or family and friends.
- Series A- This is the initial round of stock provided to investors at the early stage rounds. It falls under the range covering $2-5M, offers choices for 30-40% covering the company as well as intends to in supporting the company via the initial stages to build a business right from developing the product, hiring up to marketing and more. As the round of Series A is for higher significant cash, usually the investors are boutique VC firms or professional angel investors that specialize in this round.
- Series B- This is the second stage of financing. Usually, this takes place after the company succeeds in attaining specific business milestones as well as proven their prospective viability. It is also referred to as the venture round because during this stage the venture capitalists get involved. Along with offering an impressive capital investment, the venture capitalists will also provide more possibility for returning here for future rounds. Besides the skilled VCs will also provide mentorship and networking opportunities which the small angel investors that are unconnected may not be capable of.
- Series C- With the growth of a company it may require extra funds to cater the future milestones. Every successive venture round will follow alphabetically. Private equity investors and VCs support such financing rounds and future funding rounds which established companies may require looking forward to like a leveraged buyout, late-stage capital, expansion capital and bridge financing.
These are the various forms of funding available for entrepreneurs. So, choose one as per your needs to attain your milestones.