Top Sources of Capital for Entrepreneurs

business funding

Want to establish a new business? A good idea, only your own business activity can bring you ultimate financial freedom. But here is the problem in what way can You obtain the necessary capital for the start of your business? Many entrepreneurs do not know where to acquire funding when starting out or expanding. If you know where to look, you’ll find that there are many different sources for entrepreneurs to raise capital.

However, not every source of capital is suitable for every business. An entrepreneur should choose one which meets the capital structure that best fits their business. A business’ capital structure is the way that it is funded, either through debt (loans) or equity (shares sold to investors) financing.

Financial backing generally includes loans, grants, or investor funding. Some of the top ways to obtain capital are through angel investors, venture capitalists, government grants, and small business loans. There are other ways for financing such as credit cards or invoice financing, but these should be used only if you need cash quickly and know the risks involved.

Angel Investors

An angel investor (also known as a private investor, seed investor, or angel funder) is a high-net-worth individual who allocates financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company. Often, angel investors are found among an entrepreneur’s family and friends. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to contribute and carry the company through its difficult early stages. This type of investor prefers mostly to be involved in startups projects in order to expect high rentability.

Angel investors typically use their own money, unlike venture capitalists who take care of pooled money from many other investors and place them in a strategically managed fund.

Though angel investors usually represent individuals, the entity that actually provides the funds may be a limited liability company (LLC), a business, a trust, or an investment fund, among many other kinds of vehicles.

Venture Capitalists

Venture capitalists (VCs) are usually groups of individuals that provide capital through an organization they have established. Generally, VCs like to fund companies that are already somewhat established, and in need of more funds. However, VCs have been known to sponsor startups that show significant promise.

Venture capitalists are mostly formed as limited partnerships (LP) where the partners invest in the VC fund. The fund normally has a committee that is tasked with making investment decisions. Once promising emerging growth companies have been identified, the pooled investor capital is deployed to fund these firms in exchange for a sizable stake of equity.

VCs are looking for high profits on their investments (your business). This is not unusual for investors, but some VCs may want to be involved in your business decisions after they grant you some funding.

In the past, VCs have wanted to make decisions for the businesses they have funded to protect their investments. However, many VCs have moved to more of a mentor role, assisting you with business decisions and offering guidance as a protective measure. Ensure you enquire about the role a VC would like to have before you accept any funds.

If you do not find any suitable VCs, a small business loan may be the next option.

Small Business Loans

The Small Business Administration (SBA) has been established to assist business owners with their businesses. A small business loan through SBA partner lenders, while competitive, is guaranteed by the SBA and come with generally lower rates than traditional loans.

Small business loans are not the only form of government assistance. A source of capital often overlooked by entrepreneurs is government grants. If you are deeply interested you can find really small business loans lenders here.

Government Grants

A government grant is a financial award provided by a federal, state or local government authority for a beneficial project. It is effectively a transfer payment. A grant does not include technical assistance or other further financial assistance, such as a loan or loan guarantee, an interest rate subsidy, direct appropriation, or revenue sharing. The grantee is not expected to repay the money but is expected to use the funds from the grant for their stated purpose, which typically serves some larger good. In case if you generated an advantageous business idea that can bring a glob economic benefice you can attempt to take advantage of this type of funding.

Crowdfunding

Crowdfunding is a method of raising funds from individuals, using an internet-based platform. This method depends upon the generosity of people, and upon the exposure your crowdfunding campaign receives.

To have a successful crowdsourcing endeavor, you must be able to win the crowd’s support. They’ll want to know why you need the money and may want a reason to contribute. Create a reasonable monetary goal, and decide on a reward for the crowd that assists you. This could be public recognition for donations or letting them be the first ones to receive your product. In order to get precise information about various crowdfunding company’s check the link.

SiteTotal RaisedSupportersPlatform FeePayment FeeImportant to Know
$9B50M0%2.9% + $0.30 Can withdraw immediately and deposits take 2-5 business days
 24/7 rapid email support, mobile app, superior add beneficiary feature
 Easy to use fundraising tools make setup fast
 GoFundMe Guarantee protects donors and beneficiaries from fraud
$1.5B10M5%3.0% + $0.30 Offers “flexible funding”
 Specializes in technology and hardware product launches
 Regular email support hours; marketing and campaign strategy support
$3B15M5%3.0% + $0.20 Specializes in creative projects with robust reward level feature
 14-day wait to withdraw and deposits take 5-7 business days
 Limited email support hours
 Requires Kickstarter approval to launch a fundraiser
$330MNA4.9%2.9% + $0.30 Can withdraw immediately and deposits take 2-5 business days
 No donor guarantee policy for fraud protection
 Limited email support hours
NA22MNonprofits: 5%
Personal: 0%
Nonprofits: 2.9%
Personal: 2.9% + $0.30
 Supports UK gift aid
 14-day wait to withdraw and deposits take 6-10 business days
 No fraud protection offered
 Limited email support hours
NANAPersonal: 6.9% + $0.30
Nonprofit: 0%
 Can withdraw immediately and deposits take 7+ days
 Zero fees for charities registered with Facebook
 Nonprofits must undergo a 24-hour charity verification process, slowing down setup
 No donor guarantee policy

Microloans

These are small loans designed for small businesses and startups. What makes these loans attractive is that they are short-term loans with low interest rates compared to traditional small business loans.

Invoice Factoring

Sometimes referred to as invoice advances, invoice factoring is a process where an entrepreneur agrees with a lender to sell their invoices due, and let the lender collect future payment by the customers.

This works by a lender purchasing your open invoices from you for a reduced amount, then collecting the amount that is due. For example, if you had a sale with receivables pending for $11,000 you could sell it to a lender who might buy it for $9,000. You receive cash, and the lender receives the $11,000 when it is paid.

This is a source of capital you might use if you were very much in need of capital, as you would lose $2,000 in the transaction.

Invoice factoring means selling control of your accounts receivable, either in part or in full. It works like this:

  1. You provide goods or services to your customers in the normal way.
  2. You invoice your customers for those goods or services.
  3. You “sell” the raised invoices to a factoring company. The factoring company pays you the bulk of the invoiced amount immediately, typically up to 80-90% of the value, after verifying that the invoices are valid.
  4. Your customers pay the factoring company directly. The factoring company chases invoice payment if necessary.
  5. The factoring company pays you the remaining invoice amount – minus their fee – once they’ve been paid in full.

Credit Cards

Many entrepreneurs use personal and business credit cards to cover immediate expenses. Credit cards are convenient when you don’t have the cash to make purchases at the moment.

If you do not have the means to make your monthly payments, credit cards can exponentially increase your debt with high annual percentage rates.

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