5 Stages of Business Longevity: Raising funds
Using your own money is not your only option when financing your new business. There are several ways to secure funding, from traditional business loans to more modern, communal approaches like crowdfunding and incubator programs.
Crowdfunding is a fundraising method that has gained popularity in recent years because of its ease and accessibility. Sites like GoFundMe or Kickstarter allow entrepreneurs to pitch their business idea to potential investors, who can directly donate to a project, product, or start-up. Unlike other kinds of investing, you do not have to repay crowdfunding. Most people donate to these initiatives in exchange for the product when it is released.
Crowdfunding is particularly popular in the video game, technology, and entertainment industries, like the Oculus Rift virtual reality headset, PopSockets, and Ouya crowdfunding $8.6 million in 2013.
Private and public organizations sponsor business incubator programs to provide new businesses with various resources, from funds to mentorship and training. Most new businesses spend two years in an incubator program and usually share office space and equipment with other start-ups. There are thousands of incubator programs across the country, including The International Business Innovation Association, one of the largest programs, with over 1,200 members.
Venture capitalists & angel investors
A venture capitalist is a person or company that invests in a young business to help them launch or expand. These investors or firms are often averse to risk and aim for a higher rate of return from stable companies with growth potential.
Unlike venture capitalists, angel investors are often more comfortable taking risks and investing smaller dollar amounts at a slower rate of return. Like what you see on shows like Shark Tank, angel investors are private investors who finance new businesses in exchange for partial ownership or a certain number of shares. However, keep in mind that working with either angel investors or venture capitalist often requires you to relinquish some control of your company.
Small business loans with a bank are the most traditional and structured method. There are a variety of loan and line of credit options available that would give you the cash you need to grow your business.
You can also apply for a microloan, which is a small loan provided by individuals or groups. These loans are smaller than the average business loans and have lower interest rates, and they can be used for most expansion costs. Unlike angel investors, who are repaid in equity or shares, or crowdfunding, which is donated, with microloans, you’re personally accountable for repayment.
Take advantage of your funding options to promote business longevity and prepare your business for the future. Westfield Bank is dedicated to reinvesting in our communities and helping our neighbors thrive by offering business loans and lines of credit.