There are many ways to find funding for your business. From friends and family to conventional bank loans, our healthy economy means there’s tons of money out there for SMBs to grab. If you’re struggling to get financing – or just starting to look for it – it’s important to consider all your options. Private funding sources can differ from standard financiers because of what they bring to the table.
“The type of financing a company does should be dictated by what the money is going to be used for,” said Casey Berman, founder and managing director of Camber Creek. “What is the investor going to bring other than money?”
Venture capital firms invest money in startups, usually in exchange for equity in the company. They analyze business plans, financial statements and other business details to determine the overall expected return on their investment. In many cases, venture capitalists can provide guidance to young companies, like mentorship, access to sales networks and other development opportunities.
Camber Creek is a venture capitalist firm based in Washington, D.C. that specializes in real estate technology. Berman says Camber Creek focuses on adding value to the startups it invests in by giving them access to its network. This gives Camber Creek an opportunity to understand how a company operates before investing.
“If a company is looking for private funding, looking for more than just money is key,” he said. “In a lot of circumstances, the money might be more expensive than bank debt. However, the value that can be created through that partnership far outweighs a low interest rate.”
The downside to working with a VC – as with any lender looking for equity – is that you’ll be giving up a certain percentage of your company. It also means that you’ll have a third party to answer to as your business grows and changes. It’s important to partner with a VC that has your shared interest in mind and understands you and your business.
Much like venture capitalists, angel investors finance startup companies, usually for equity in the company. The main difference between venture capitalists and angel investors is that angel investors may be smaller and can provide different value. They also may have different ROI requirements from VCs. Berman said some VCs are looking for 100 percent growth year over year.
“Not all money is created equal,” he said. “A venture capitalist is going to structure a deal one way, a private equity firm is going to structure a deal a different way, and an angel investor is going to do a different deal.”
Alternative online and fintech lenders can be a great funding option for small business owners. They provide short-term, high-interest loans for business owners looking to quickly grow and expand their business with capital. The biggest draw of these lenders, however, is their flexibility.
Alternative lenders rarely require equity like an angel investor or venture capitalist firm. Instead, they provide loan agreements that mirror conventional banks but usually have much more relaxed requirements to qualify and higher interest rates. Alternative lenders also have various loan packages and types, like invoice factoring, merchant cash advances, lines of credit and equipment financing. This flexibility makes alternative lenders the most viable option for some businesses.
Read more: https://www.businessnewsdaily.com/11015-private-business-funding-sources.html