Get Funding

When you think about funding your business, there are three options available:

Bootstrapping: this is the term used when an entrepreneur or small business owner takes no outside funding from investors or loans from lenders. Bootstrapping a business means you grow it organically and reinvest profits back into the business to help it grow.

Advantages: Retain full ownership and control of your company; you don’t owe any money to anyone; ability to choose the direction of your company and make all key decisions; forces owners to be creative and efficient with funds available.
Disadvantages: May take longer to grow and expand your business; you will not have much disposable income; not practical for businesses that need large amounts of capital (like manufacturers); inability to leverage the networks of investors.

Financing: accessing debt capital from a bank, credit union, or other lending institution that must be paid back over a defined period of time and accruing interest at a specified rate.

Advantages: Loan amounts can range from small to large depending on company’s needs; debt does not include equity in your company; there are many types of lenders including traditional banks and alternative lenders; government institutions like the SBA support and underwrite some loan products.
Disadvantages: Loans require some type of collateral, which may include business assets or event personal property of owners; many lenders are wary of loaning to young companies; loan terms are generally not as creative and flexible as equity stakes; if you default on a loan, lender will likely have access to company assets; banks may require you to adhere to certain restrictions (like maintaining a certain debt-to-equity ratio).

Investment: seeking outside money from an angel investor, venture capital firm, or a variety of other sources (including friends and family) in exchange for equity (ownership) in your company. Entrepreneurs usually seek investment when they expect their company to grow large very quickly.

Advantages: Ability to raise large amounts quickly, sometimes over multiple rounds of investment; gain access to other resources when partnering with investors (highly qualified employees; access to other investors; strategic business advice; etc.). Investors can also devise a wide range of ways to structure their investment (like a combination of debt and equity), which can provide you and them with flexibility.
Disadvantages: Investors generally take ownership of a percentage of a company meaning you no longer have full control; your long-term goals may not align with investors’ goals; investment amounts vary but most professional investors won’t invest less than $100k, and some firms won’t invest less than $1 million or more.