Every funding strategy comes with a cost—whether it’s cash, control or peace of mind. The best strategy is the one that delivers the most value for the price paid, no matter what currency you pay it in.
If you’d rather part with some cash and maintain total control, there are a lot of options.
Self-funding
Borrow from yourself. Tap into your life savings, borrow against your home or 401K or max out your credit cards. The costs vary from the mental stress of forgoing a safety net, to the possible lost returns on investments, to the interest—currently averaging 15.10%—on credit cards.
[Read: Should I Bootstrap or Look for Investors?]
Friends and family
Asking those closest to you for a loan can be a viable option, but be sure to treat it like business. Spell out your goals and a timeline for repayment. Be sure to explain the risks, which may not be as obvious to others as they are to you. Put your agreement in writing. Doing so will protect you, your lenders and your relationships.
Banks and online lenders
If you’ve got a solid business plan, a good banking relationship and a stellar credit history, a traditional bank may be the most cost-effective way to fund your business. Online lenders have a higher approval percentage and a faster turnaround time, but those perks come with a cost. Interest rates from alternative lenders range from slightly to many times higher than a traditional bank.
Microloans
These small loans (usually less than $50,000) are most often meant to provide funding for an underserved demographic. They come with less stringent approval requirements and offer attractive interest rates. A list of nonprofit intermediary lenders is available at SBA.gov.
Every funding strategy comes with a cost—whether it’s cash, control or peace of mind.
Crowdfunding
Kickstarter, Indiegogo and Prosper offer multiple ways to secure cash for your business without giving up control. Through donations, rewards and peer-to-peer lending, these sites have proven effective at raising cash. While some campaigns have been wildly successful, the average crowdfunding campaign raises around $7,000.
[Read: 9 Wildly Successful Crowdfunded Startups]
If you’re willing to give up some control in exchange for the needed dollars, equity funding may be the answer. An added bonus is the advice and expertise that often comes with these strategies.
Venture capitalists
VCs provide big money for big ideas. If you’re willing to trade part ownership of your company for the backing necessary to make it a disrupter, consider seeking out a venture capitalist. Better yet, develop a killer pitch deck and seek out several. Be sure to consider the end game. VC investors not only want a piece of your company, they want to know you are prepared to give it up when the time—and the opportunity for cashing in—is right.
[Read: 3 Things You Need to Know About Raising Venture Capital]
Equity crowdfunding
Rather than good karma and free samples, sites such as Wefunder and CircleUp offer those who put their money at risk a piece of the action. Your success becomes your investors’ success, giving them reason to talk your business up. Equity crowdfunding is regulated by the SEC and the amount you can raise each year is limited. If you’ve got good accountants and lawyers—you’ll need them to file the necessary papers—and you don’t mind sharing ownership, this is a path worth investigating.
Angel investors
Unlike equity crowdfunding, which requires the public release of a great deal of information, working with an angel investor is a private affair. Most angel investors will want to share control of your company and be included in a lot of the decision-making. The upside is that high net worth individuals come with insight and connections—two things that it is difficult to put a price on.
Whatever funding strategy you ultimately choose, take the time to review all of your options. How and where you get your money can have long lasting implications.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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