Raising the financing for your small business 101

Raising the financing for your small business 101. As you venture into the world of small business financing, you will find there are several different options you can look into. Though, each of these options has some positives and negatives that may make one options more appealing than the other.

In order to raise the needed funds for your small business, you will need to look at what you have to offer to your own business. This can be in the form of good credit, equity in a home, tools, a great business plan, or family and friends who have money and who will trust you with that money.

There are a couple different ways that funding is usually available for a small business. These two options would be the use of a loan, either personal or small business. Or, you can get investors to purchase parts of the small business for a certain amount of money that can be used in the funding of the business.

The thing about both of these options is that you have some good things that come from them and some not so good things. Here are some pros and cons of both getting a small business loan, and getting investors to finance your business.

Whether you borrow the money from a friend or family member, there are a few pros and cons to look at.

Pros

Family and friends will likely give you a lower interest rate
You will have more flexibility in the long run for renegotiations.
You will avoid many loan fees.
You may be able to negotiate payback when the business is making a profit.

Cons

They will want controlling power in the company.
You will have to pay the money back no matter what to keep the peace in the family.

If you get a loan from a professional lender or bank, you will also have several pros and cons.

Pros

The banks have different reasons to loan people money.
They have larger amounts of money to loan.
The do not want as much control in your business.
If you have to take out bankruptcy, then you will not have to pay the loan back as long as you do not use real property, like your house for collateral.

Cons

You have less negotiation power.
You will not be able to come up with the rate you want.
They will have higher rates.
There is a larger debt that the company will have to face during the crucial times you are trying simply to survive.

If you stay away from loans and get investors to join you in the adventure of your small business, then there will be pros and cons with this also.

Pros

This is one of the most practical choices for starting a business. The reason is that you do not have a huge financial debt right off the bat.
There is not a big loan being taken out.
If the company fails, or goes broke, you will not have to pay back the initial investment from the investors. They are usually aware of the risk.

Cons

They want controlling decisions in the business.
They may want larger shares of the business profits.
The investors will usually want to be informed of business decisions, functions, changes etc.
You will need to consider your investors best interest in all of your decisions.

With any option you go with, keep in mind that you will still have some legal and ethical responsibility. There is also going to be a good deal of paperwork for no matter what choice you go with. The ultimate option would be to use your own money. However, this is not the choice that many have right at the time of starting a small business. Therefore, it will be up to you to choose what is going to be your best option for financing for your small business.

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