What Are My Business Financing Options?

[Treehouse Presents - Quick Tips: What are My Financing Options? with Pasan Premaratne] 0:00 Hi! I'm Pasan. In this Treehouse Quick Tip, we're going to discuss the different kinds of financing options available to your business. 0:05 When financing your new business, you have 3 options—equity financing, debt financing, 0:13 and other sources like angels and venture capitalists. 0:18 In equity financing, you sell an ownership stake in your company to an investor in exchange for funding. 0:21 The advantage of equity funding over debt financing is that with equity, you don't have to pay back any of the money that you sourced. 0:27 Investors gain a return when the value of that ownership stake increases as the company performs well and grows. 0:34 The only disadvantage to this is that every time you sell an ownership stake, it reduces yours. 0:40 So as you bring more and more investors on board, you're relinquishing more and more control of the company. 0:46 Debt financing, on the other hand, is much more common, much quicker to obtain, and available in many different sources. 0:52 Unlike equity financing, however, you do have to pay the debt back. 0:59 This means that any extra cash that you have can't be used to improve operations or increase business, 1:03 because the debt has to be serviced. 1:09 Let's look at some of the sources of debt financing available to a newly-minted business. 1:11 The most common type available is a bank loan. 1:16 In this economy, that sort of lending may have slowed down a little, but you can still get one, providing you do your part. 1:19 When taking out a bank loan, you may need to show the bank a business plan. 1:25 They will be interested in what your business does, how much money you need, and how you intend to spend it. 1:29 More importantly, though, they will want to know how you intend to pay them back and how long it will take. 1:35 So be prepared to show financial projections. 1:41 In the United States, the Small Business Administration provides all sorts of loans for small businesses. 1:44 While the SBA puts up the money, the actual loan is delivered to the business through commercial banks. 1:49 While the SBA is a US institution, the concept isn't unique to this country. 1:55 Look for government institutions that will help you finance your company. 2:01 If you happen to be in an industry that the government supports, you can find plenty of grants and loans to finance your business. 2:05 You just need to do your research and look for them. 2:12 A lot of entrepreneurs use credit cards to finance their business. 2:14 Now while it's a viable source, you have to be careful with a credit card and pay it back as fast as you can to avoid high-interest payments. 2:18 If you do get one, use it wisely and establish guidelines for putting payments on the credit card. 2:25 Do not use the card for personal spending and even more important, try to only purchase revenue-generating items on the credit card. 2:31 Finally, as a rule of thumb, don't borrow any money that you can't repay in the near future. 2:39 Now while those are the most common, they're not the only kind available. 2:45 You have options like a home equity line, which is essentially asset-back borrowing. 2:48 You could use your retirement funds, borrow against your life insurance policy, and even go for private debt offering. 2:52 There's a lot of choices out there. 2:58 But other than traditional debt and equity financing, there's also sources like angel investors and venture capitalists. 3:00 Angel investors are high net-worth individuals who invest in emerging companies, usually in their area of expertise. 3:07 Anyone with money can be an angel investor, so they're somewhat hard to find, given that there's no central directory of them. 3:14 Angel investors do, however, hold meetings often. So prepare your presentation and hunt for them. 3:21 Unlike angel investors who are individuals, a venture capital fund is a pool of money from high net-worth investors. 3:27 A fund manager then selects companies to invest the money in. 3:34 To receive venture capital funding, companies must go through an extensive review process, 3:38 after which they agree to terms and sign a stock-purchase agreement. 3:43 Most venture funds invest in certain types of businesses only, so check to see whether your company matches up with their ideals. 3:47 So that's a quick list of sources for financing your business. There's always money out there, you just need to know where to look. 3:54

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