Securing funding can be a little daunting at first. Here’s how to make sense of all funding options and choose the right one for your startup business.
By Craig Falck for Africa Report
Photograph: © Mauricio Jordan De Souza Coelho | Dreamstime.com
When it comes to seeking financial assistance to turn your idea into a business, the supply of funds is endless. The trick is to find the one that best suits your needs and the one that won’t be detrimental to your business and personal life. Here are a couple of tips on how to source the right funding option for you…
First things first: decide what kind of funding you need. Seed capital is funding given to businesses that aren’t actual businesses yet – they’re still ideas and concepts written down on pieces of paper. This sort of funding is the perfect kick-start to go from concept to actual enterprise. Startup funding is financing that is acquired to get the business into full motion. It has already been formed and all the details finalised, but all it lacks is funding to buy machinery, equipment, stock, etc. Working capital is money that is raised to cover running costs until the company reaches its break-even point. Expansion funding is used to basically expand the enterprise. This can mean anything from new machinery to new buildings to new stock.
It’s important to remember that at startup phase, all you will have is a company that has been formed, registered with the correct authorities and a service or product that you hope to enter the marketplace with. Now the difficult task begins – actually getting your hands on the money that you need to go from startup to fully operational enterprise. There are a number of options here too. The first is getting into debt, i.e.: taking a business loan. You put together all your documents, head off to the bank and complete a loan application form and hope that they consider you a viable business opportunity and agree to grant you the loan. You will then sign a loan agreement and are contractually obliged to pay a monthly repayment at a fixed interest rate. You don’t always have to go to a bank for loans… some people lend the money from family or friends and draw up their own loan agreement deals.
Next up is selling equity in your business. You find an investor, they give you money and in return own a portion of the company. This is a great method of raising funds if you find the right investor. If, however, you find yourself getting involved with a dodgy partner, you’re in for a seriously difficult time in the office. The benefit of selling
equity is that you don’t have to repay the ‘loan’ as the investor has bought part of the company. One of the downsides is that they now have a say in the business and you may not always agree 100 percent. Grant funding is the last option we’ll be looking at. Basically, it’s funding by government programmes that are specially set up to assist promising young entrepreneurs whose ideas will help the country as a whole. The one downside of this is that the criteria is strict and if you deviate slightly, you don’t stand a chance.
Sourcing funding for a startup is a critical process that needs to be done properly. You need to assess the situation carefully and make sure that you take the right option for you and your business. Good luck.
Source: http://www.howwemadeitinafrica.com/need-funding-for-your-business-here-are-the-options/14621/
