The Pros and Cons of Business Funding
Starting a business will lead to having to make countless decisions.
Share with friends
The first big decision you’ll have to make is how to fund your small business. You may ask yourself, “Should I get funding?” or “Should I seek investment?” No matter how you phrase the question, you’ll essentially be asking how to do it.
What works best for some isn’t the right choice for others. There are many variables to each funding route you may choose to take. Let’s weigh the pros and cons of some of the most common ways by which you can get business funding.
Funding Options: Weighing the Pros and Cons
- Bootstrapping: When you hear bootstrapping, you probably think that it means using money from your own pocket. While that’s one way to bootstrap a business, there are other ways to do it that are still considered bootstrapping. The actual term means that you finance your company through unconventional methods. One may be the use of existing resources or renting out your home to make extra cash. Another way is to use earned revenue instead of borrowing money. A lot of companies make it successfully by traveling down the bootstrapping route. For example, Patagonia, SPANX and GoPro have all become household names, founded by entrepreneurs who funded their businesses as they grew.
- Pros: Without borrowing money, you won’t have to worry about paying it back or paying interest.
- Cons: Bootstrapping may not be timely enough. If you have to wait for sales or income from another hustle, then you may lose valuable time that you could have otherwise been spending on the business’ needs with outside funding.
2. Borrow Money – Formal: One of the most popular options that entrepreneurs use to get their company off the ground (and continue to use throughout its existence) is to borrow money from an institution or government. There are several options to choose from when you borrow money. A few common sources include:
a. Bank loans: You can apply to receive a business loan from a bank. If you don’t know where to begin because there are so many options, try use our Marketplace, which is designed to match you with the loan provider that best suits your current needs.
- Pros: You can receive loan amounts that may be larger than funding from another source.
- Cons: There are strings attached to loans, and it’s not always easy for new businesses to be approved for loans because they may lack good credit or business history.
b. Merchant cash advances: A merchant cash advance is a way to borrow a lump sum of money quickly. When you get a merchant cash advance, you promise to pay it back with a portion of credit card sales.
- Pros: The funding is fast. We mean, really fast. Uplyft Capital can get you business funding within 24 hours through an easy application. You also don’t need to have a good credit history or any collateral.
- Cons: MCAs aren’t meant to be a long-term solution.
c. Investors: There are different types of investors. Angel investors are individuals who lend money usually at the inception of a new business idea. They tend to give large sums. Venture capitalists invest in several new businesses on behalf of clients. This makes receiving venture capital a competitive scene.
- Pros: It’s a great way to get large amounts of funding and also potentially gain a mentor in the process.
- Cons: It’s costly! After all, it’s an investment so they need it to be worthwhile to give up their money. This means they’ll ask for some ownership (equity) in your business.
3. Borrow Money – Informal: If you don’t want strings attached when you borrow money, you may be in a position to take a loan from friends or family members. You can also consider crowdfunding platforms like Kickstarter. Even when you seek assistance from personal ties, it’s best to prepare a business plan and showcase how you will be able to pay back the money in a set timeframe.
- Pros: Since the funding isn’t regulated, there will be more flexibility. You may also feel more motivation to do well so that you can pay back the money more quickly because you care personally about the lender.
- Cons: At the same time, borrowing from someone with personal connections could lead to higher levels of stress or could damper your personal relationship.
Here’s To New Beginnings
Finding the funding source that makes sense for your new business adventure will require research. How you choose your funding method will affect the early days of your business, which lay the foundation for what is yet to come.
The upside is that you can start with one funding method and always change it up as the business grows. Your needs will change as you grow and scale, too. If you’re worried about being approved for a business loan, look to merchant cash advances. If you have family and friends with disposable income who are willing to lend some cash, you can avoid the competition of finding a venture capitalist.
Getting started is the first and most necessary step!