There are a wide range of ways that individuals and businesses can secure funding in order to get a project off of the ground, or launch a new business. Regardless of which is chosen it is important to have stable finances and a detailed business plan before reaching out to other entities to ask for funding. Below are a variety of options to get the money you need. Regardless of the funding option you choose, spend time to clearly investigate all of the terms and conditions and make sure they fit your business plan. Talking with other entrepreneurs can also provide invaluable insight.
Angel Investors are always on the lookout for the next business to invest in. Giant companies like Google and Yahoo, were funded by angel investors. Taking money from an angel almost always requires you to give your investor some share of equity in your company. Angel investors and any related transactions must be registered with the Securities and Exchange Commission (SEC).
Contests are consistently popping up around the state and the nation that can serve as a source of funding as well as other benefits. Pitch competitions are the most common. during these, a representative of each participating company has a certain amount of time in which to persuade public audiences or judges to vote for its company or idea to win a prize. Prizes typically include funds, though they may also provide additional resources, recognition, and support.
Crowdfunding allows an entity to fund all or a portion of a project or venture by raising small amounts of money from a large number of people, typically via websites designed for that purpose.
Grants are government funding to support ideas that bring jobs or are otherwise in the public interest. The federal government generally offers grants only to nonprofits, educational institutions, and state and local governments, though there may be an option to partner with such entities to compete for a grant. Sometimes, nonprofits and state or local governments offer economic development grants directly to businesses. Check with your local and state governments for grant opportunities.
Loans in the simplest of terms are funds borrowed in order to fund a project or seed a company. Loans, even from family and friends, are designed to have the money that was lent returned, typically within a mutually-agreed upon time frame. Most often, especially from credit unions and banks, loads require that interest is also paid on the amount borrowed in addition to returning the principle.
Lines of Credit are essentially special loans that provides a flexibility that a regular business loan does not. With a business line of credit, a company and a lender agree to a limit that the company can borrow. The company can then withdraw and repay funds as needed, as long as it does not exceed the credit limit. It pays interest only on the portion of money borrowed–similar to a credit card.
Microloans are granted by institutions, typically nonprofits, to individuals who would not normally qualify for a traditional bank loan. Instead of gifting a donation to the nonprofit organization, microloan entities allow individuals to loan and often re-loan those same funds to individuals in need of economic opportunities.
Product Pre-Sales can provide materials funding in situations where the company primarily makes and sells products, and needs money to get the products made before they can be brought to market. Taking orders with payment in advance can provide the necessary capital to fulfill the orders. It can also create pressure for some entrepreneurs. Take time to consider the ramifications of collecting money before providing a product. It requires setting and adhering to a solid timeline.
Purchase Order Financing can be an option when a company finds itself unable to fulfill a large order due to a lack of funds to purchase the materials needed to produce the goods. A purchase order financing organization will essentially extend an advance so the organization can purchase the materials it needs today and then collect back the money once the goods are sold.
Vendor Financing means negotiating longer payment terms with vendors a company will owe. It does not directly provide funds, but can make it possible to fulfill orders. Most vendors require payment on invoices within 30 days before implementing late fees and penalties. Negotiating a longer term can provide more cash to work with in the interim.
Venture Capitalists are similar to angel investors in that they have money to invest, which they want to invest in young, up-and-coming businesses with a high potential for growth and monetary returns. They, too, typically look for a share of equity in exchange for their investment, but are also interested in having a voice in the direction of the company.