Securing funding is fundamental to starting a business. Funding your business is one of the first important financial decisions you will need to make as an entrepreneur. A founder has many ways to secure funding depending on the type of business and your specific goals. As a founder, you need to understand your funding requirements, how much capital you will need to secure, and what that funding will be used for. 

You must take the time to know your funding options — and make decisions carefully, as they can affect how your business is structured and operated. Below, I summarize some common options for funding a business:  

Securing funding with Bootstrapping

Securing funding with self-funding, also known as bootstrapping, is one of the most common ways businesses are funded. When you use bootstrapping, you tap into your personal funds, such as a savings account or even a 401(k) account, to kick start your company. While this lets you keep full control and ownership of the company, bootstrapping  also comes with substantial personal risk.   

Securing funding from Friends and Family

Many entrepreneurs seek funding or loans from family and friends for securing funding. Funding or loans from family and friends can mean faster access to capital than applying for a loan, flexible terms, and lower interest rates. However, if you struggle to repay the loan, you may create tension with your loved ones and put your relationships at risk. To keep everyone comfortable and secured, as an entrepeneur, you should create a formal loan agreement that outlines a repayment schedule, interest rates, and the consequences of defaulting — no matter how close you are with the lender.  

Angel Investors for Securing funding

Not to be confused with venture capitalists used by risk capital companies, angel investors are affluent individuals who invest their own money into business ventures they believe have potential. Typically, they provide funding in exchange for a percentage of equity in the business. Angel investors must be accredited and have an income of at least $200,000 per year and a net worth exceeding one million dollars.  

Venture Capitalists for Securing funding

Venture capitalists invest capital in return for equity in the company, rather than issue a loan. Most venture capitalists focus on businesses with high potential for growth and will take on considerable risk. However, venture capitalists will still want to assess your business plan to ensure it meets their criteria and conduct a due diligence review of your company. Nearly all venture capitalists will also request a seat on the board of directors in exchange for providing capital — you should be ready to give up a portion of ownership and control of your company if you decide to secure funding this way. 

Crowdfunding for Securing funding

Crowdfunding lets an entrepreneur raise funds from a large number of people. This approach usually relies on platforms online or social media efforts. While crowdfunders do not expect to receive a share of ownership or any financial return, they are typically given a gift from the company or some other perk. This form of raising capital is low risk and allows a business owner to retain complete control over the company.   

Securing funding with Government Programs

Certain government programs that make access to capital easier for small business owners. Depending on the business, these can include:

• Government grants — Grants may be available for small businesses that engage in research and development, community organizations that promote entrepreneurship, and exporting. 
• Government tax credits — Government tax credits can help incentivize certain business-related activities.
• Loans from government agencies — The US Small Business Association and other government agencies offer various loans for small businesses, including rural business loans, 504 loans, and SBA microloans. The SBA also partners with lenders to help increase small business access to loans. 

In addition to government programs, industry-specific private loans and diversity grant programs exist that business owners seeking funding should look into. 

Traditional Loans for Securing funding

Traditional loans from financial institutions are a common source of funding for many small business owners. These loans often require a business plan, good credit history, and collateral. Although a bank loan can offer you low interest rates and predictable monthly payments, qualification criteria can sometimes be stringent, and the paperwork can take a lengthy amount of time.    

Contact an Experienced New York Business Attorney

If you are starting a business and need to explore your funding options, it’s best to consult with a knowledgeable business attorney who can best advise you. Offering dedicated counsel and reliable legal services, Brinen & Associates advises entrepreneurs and business owners for many different types of business matters. Call (212) 330-8151 or send us a message to learn more about how we can assist you.