Business Community

When you decide to start a business then odds are you will need start-up funding. Once you decide how much you need, the first order of business is deciding what type of lender to approach. It might be Uncle Joe who is certainly an option as a private investor, but it will probably be an investment banker, equity partner, business lender or venture capitalist. Then again, it might be an angel investor or private lender who believes in entrepreneurship.

Looking at the list of possible start up funding lenders, it’s clear you have many choices when it comes to finding money for your business. It’s unfortunate that many new entrepreneurs go straight to their banker for a loan, get turned down and then turn to Uncle Joe. There are many other sources of funding you can pursue before you put your relatives on the spot.

There are two broad categories of start-up funding.

1 Equity financing 2 Debt financing

Within each of these two broad categories are the various types of specific funding opportunities. Equity financing refers to when you receive capital but in exchange you give up part ownership of the company. When using debt funding, you receive funds in the form of a loan. The loan must then be repaid.

Venturing into the World of Equity Financing

Equity funding usually comes from one of three sources: institutional venture capital, equity partner loans, and angel investors. In exchange for funding your business, the equity investor will want to assume some form of ownership. Ownership may be in the form stock shares if you are incorporated or a partnership if you are not.

Some new business owners prefer to pursue debt funding to avoid giving up any control of the company. A lot depends on the amount of start up expenses and first year operating capital you need. If you are starting up a high tech business that requires a heavy investment in expensive equipment, taking on a partner or selling stock may be the best way to raise significant amounts of funding.

On the other hand, if you are a very small start-up then you may want to keep 100% control of your business. In that case, debt funding will most likely be your best source of start up funding.
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