Finding Seed Money — Where to Look for Sources of Capital Funding for Your Business
Everyone knows it takes money to start or grow a business. The amount of money you need varies according to the type of business you plan to start or your goals for growth. Like other challenges in life, it can make the task less intimidating to break in into smaller chunks. The first job is to decide how much money you need.
Entrepreneurs tend to excel at problem-solving, so you may have already planned and budgeted and arrived at a figure representing the amount of capital you need. The next step is to fully consider all your funding options. These are some of the most common sources of money for business start-ups and expansions:
- Accounts receivable funding — Companies in service industries with few physical assets are good candidates for this type of funding, but only if your business is already in existence. These loans are based on your business's accounts receivable volume and quality.
- Bank loans — Start with a bank you have been happy with in the past and find out if they offer business loans. Bank business loans are based on standard credit guidelines, including business credit history, owner credit history, historical revenue and expense trends, debt to equity ratios, and the business owner's net worth. Bank business loans often require an owner to sign as a personal guarantor, meaning if the business is unable to repay the loan, the business owner is on the hook.
- Acquisition financing — This funding method involves one business purchasing another and can be an option when thecompany making the purchase has sufficient debt to equity to guarantee repayment of the loan. Businesses often grow by acquiring other businesses.
- Angel investors — This is a type of investor funding, so called because these investors often represent the last resort when no other funding source is available. Angel investors typically provide funding from their own personal wealth. Most investments are under $50,000. Lending standards are usually not as rigid as banks or venture capital companies, but the costs to the business are usually higher.
- Venture capital — Venture capital is a type of funding where the investor buys into a company, infusing the company with cash in exchange for an ownership interest. The venture capitalist may insist on a management roll in the business. Venture capital usually costs more in terms of interest and shared business control.
If you are ready to start or grow your business and trying to figure out the best source of funding, contact an experienced Bryan-College Station, Texas business law attorney before you make a costly mistake. Our attorneys prepare and review proposed funding contracts and guide business owners through start-up and expansions. Call the Peterson Law Group to make an appointment at 979-703-7014 or fill out our online contact form.