3 Tips for Entrepreneurs in Search of Funding
Entrepreneurship in the United States is experiencing a renaissance of epic proportions. Starting your own business and finding funding for that business have even become trendy in popular culture. Just think about the multiple reality television shows that feature venture capitalism and entrepreneurship.
How in vogue is becoming your own boss? Consider this: In the U.S., 14 percent of the workforce now consists of entrepreneurs.1
If you’re one of the many people looking to start your own business revolution and do nine to five your way, one thing is certain: You’ll need funding. While some have the opportunity to fund their own startups, most people will need to be financially backed in some way. Either from a traditional bank or a venture capitalist, gaining the right financial partner could make all the difference for your business.
Below, we’ve highlighted three important questions to consider when searching for funding for your business.
1) Traditional or Non?
There are several ways to fund a business. The most traditional would be to get a business loan from an established bank. However, not everyone’s able to do this. Plus, even if you do qualify for a traditional business loan, it may not be the right option for your needs. So, before you head to the bank in an attempt to get funded, there are a few things to consider.
First, to have any chance at getting a loan from a bank (or anywhere for that matter), you’ll need a well-articulated business plan. This should include a competitive analysis that outlines your unique selling points, overhead and profit outlook.
Once this is in place, you’ll need to consider if you’re interested in a funding partner who is active in your business or one who’s not. With a bank, you have access to funds; however, with a venture capitalist or another non-traditional financing option, you could have access to funding as well as valuable business insight from experts with high-level business experience.
2) Are You Willing to Give Up Equity?
Ownership. In a business, it’s everything. The stock market is built around it. For aspiring entrepreneurs, determining how much of their company they want to give up in exchange for financial help is a huge decision that needs to be thought through before seeking funding.
The decision to give up equity in a company could also be influenced by how much business knowledge and experience you have. For example, if you’re starting a toy company and have been working in the toy business for 30 years, you may not require the strategic partner a beginner might need. But, if you’re not as familiar with the industry, giving up 20 percent of your business in exchange for a strategic business and funding partner may be the right decision—only you can know what works best for your needs.
3) How Will You Pay It Back?
Okay, so you’ve decided to move forward and find funding. Your business plan is ready and you know exactly who you want to approach to make it happen. There’s just one question remaining…
How are you going to pay the loan back?
If you’re an entrepreneur and you haven’t thought this through yet, stop and THINK IT THROUGH! Some lenders will require you prove to them the ways in which you plan to pay them back. Either way, you need to be prepared to explain how your funder(s) will get their return on their investment.
This also allows you to fully assess the risk of your loan. It gives you the opportunity to see if you can afford to pay it back while still meeting all of your other financial responsibilities (auto, rent, insurance, etc.).
Go Forth and Prosper
Starting a business is exciting, but it’s important to stay grounded during the process so that you make the best decisions for both your future and your company’s. The funding tips we’ve outlined here are just some examples of the organizational strategies you can use to ensure your business is the success you want it to be.
It’s hard work, but for many, the ability to be your own boss makes it completely worth it.
Interested in reading more? Check out some of the top women in business today.
Buchanan, L. (September 2015). The U.S. Now Has 27 Million Entrepreneurs. Retrieved on May 25, 2017, from inc.com/leigh-buchanan/us-entrepreneurship-reaches-record-highs.html