Almost all startup entrepreneurs often seem confused as they are unable to decide what is the best way of funding their businesses. We will try to solve this issue, lets consider a case study.
Rita and Stella run two separate catering businesses, and they are startups. To buy cooking equipments, to expand there hotel and catering business, they were in need of some money. They had two options in front of them as I mentioned earlier, Seeking a loan or finding an investor. Both are good, and are the only options they have.
Rita, understands that she needs an investor who invest money in her catering business. But she decided to bootstrap her business with the resources she already has got and was ready to seek a bank loan if necessary. She didn’t want to give up the ownership to anyone by equity trading. She admits that trading an equity is nothing but loosing your freedom. She adds, For every decision and move you make, you will always have to answer your investor questionnaire. So, she wanted a full control on her business and didn’t want to end up in showing business results and profit to an outsider. So that was Rita’s strategy.
But Stella‘s strategy was to go with an investor’s money. She understands that her business needs some good money to grow and expand her business nationwide, Stella believes that seeking an investor for funding is a risk free strategy for her startup and even if her business end up in loss also that wouldn’t cost her much. She was ready to put all the effort but didn’t want to face the risk it contained. And also Stella admits that she may not get sufficient loan from the bank that what her business needs
Now what you opt?
Seeking a loan: There are many banks and financial firms which provides loan with less interest rates for one who wants to start a business or wants to invest in business expansion or growth. There are many subsidiary funding programs from government as well. To promote the entrepreneurs government has made some separate promotional programs for startups and for growing businesses as well, If you’re running a business which is more than 18 months old then you will avail some extra credits and discounts in loans that you may use for business expansion and further growth. But disadvantage is that one may not get as much loan as he/she needed for their company. Banks or firms provide limited loan support for some security reasons.
You need to be conscious and be practical while seeking a loan because it would be just terrifying if you owe anyone $200,000 loan. Always have one alternative option an dyou should be able to answer this quetion ‘If that didn’t work then what your going to do for loan payment?’
Seeking an Angel investor: As we discussed, Stella’s funding strategy, Seeking an investor for funding is a risk free strategy. Investor and you together can give a new mode to your company or business. You can go for multiplt investors as per your need.
But disadvantage is that you need to answer others for every decision and move you take, you will not have the freedom of decision making and controlling the company your own. That’s not a big deal (I feel), Because you will have the pleasure of working with different people and able to seek their support, mentorship and directions in every aspect of your business.
But, author recommends you to be conciuos and make everything clear before you signing up a contract with an investor. If necessary seek a legal adviser’s help or contact feedose for instructions.