Every plan needs financing. Your fully developed business plan should include how much capital (money) you need to get your business going. You may have access to capital or you may need to secure financing.
Borrowing money, also referred to as debt financing requires repayment of the loaned amount over a period of time plus interest. Debt can be secured through traditional and non-traditional, or a combination of both, to finance your business. Traditional lenders are banks – which often have stricter rules about who can obtain a loan. Whereas non-traditional lenders, such as nonprofit or community lenders, grants, or other alternatives can offer more flexible and lower interest financing options.
You may want to seek investor financing. Investor financing could come from a friend, relative, or colleague. There are also venture capitalists whose investments are specialized into start-up or early stage businesses who are higher risk but high potential.
Friends, Family, and Colleagues
It is important that when you are borrowing money from people you put the terms in writing. Garnering agreement up front can alleviate latter complications. There may also be tax implications for the investor, so it I important that the terms of the agreement are clearly documented.
Venture capital funds typically come from either individual investors or a venture capital fund (angel fund). The venture capitalists will dictate the terms and conditions of the investment in your business. As with family, friends, and colleagues, it is important to specify and document the terms before allowing the investment.
A relatively new phenomenon in raising capital is through crowdfunding. Crowdfunding is a method of raising money in small amounts by a large number of people. You set the goal for the amount of money you wish to raise. This method is also a unique way to share your product or service and start generating awareness and demand for your new business or product. There are numerous websites that allow you to create and share a crowdfunding campaign. Make you read the fine print and fully evaluate the rules, requirements, and fees for each site so you can maximize your fundraising.