How to Select Sources of Finance for Business

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Business financing can help you to keep your business afloat and provide you with the working capital necessary to move your business forward. Financing for your business can come from different resources. For a variety of reasons, some types of financing are better for your business than others.

  • Compare general types of financing. Financing consists of three types: debt, equity and grant. Debt financing involves obtaining capital by going into debt. An example of debt financing includes loans. Equity financing consists of obtaining capital in exchange for a share of your company. Examples of equity financing include investors or stock offerings. Debt equity requires an ongoing monthly payment that taps your resources. Equity financing requires that you give up partial ownership and a share of longterm profits. Grant revenue consists of "free" revenue provided by the government or a non-profit foundation. To receive a grant, you must state how you will use the money, but you don't have to pay it back,

  • Evaluate the amount of available financing. For instance, venture capitalists and other equity financeers can offer millions of dollars to small business owners. Bank loans and small-business loans often do not offer such large amounts of financing.

  • Compare the expertise behind the money. For instance, venture capitalists often offer consulting and business prowess. Once they invest in your business, investors have a vested interest in the success of your company. Bank loans do not provide this expertise. Grants often offer consultants, but they typically require you to have the expertise prior to funding your operation.

  • Review specific sources for debt equity. Banks offer lines of credit and small business loans. Visit the Small Business Administration (SBA) website for information on micro-loans and larger business loans. You can also obtain loans from friends or family. Credit card companies often offer small business loans or you can obtain revolving capital via a business credit card. Compare the interest rates and pay-off stipulations for each funding type.

  • Examine specific sources for equity funding. You can locate equity investors at a variety of online sites. Compare each investor's expertise, history, funding amount, stipulations and investor oversight.

  • Review grant sources. Grants.gov provides a list of non-profit organizations that offer a variety of grants. Review the grant application guidelines.

  • Compare special interest resources. Special interest resources include organizations with a focus on specific types of businesses or business owners likwomen or minorities. These types of financing opportunities often provide low-interest debt financing or grants backed with a variety of valuable resources and expertise.

References

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