Three Key Types of Funding and Criteria You Need to Know to Finance a Business

If you have come to the conclusion that financing your business is the most beneficial and…in the end…most lucrative option for starting or growing your company, you should familiarize yourself with the overall “funding landscape”.

Before I say more about the general landscape, I do want to address a few facts of which you should be aware if you are a female business owner. Albeit the rate of women starting businesses these days is twice that of men (women own 30% of privately owned businesses), statistics also show that:

  • Most female-owned businesses earn less than six figures
  • 30% of the businesses owned by women generate only 11% of business sales
  • If you’re a self-employed woman, you make 55% less than a self-employed man
  • Women seek less financial help for their businesses
  • Women historically have had less access to funding, but that is changing

Different kinds of funding sources often focus on financing businesses based on different criteria, such as:

  • The stage of the business cycle you are in
  • How much risk you’re willing to take (if you’re willing to take more risk, you have more opportunities)
  • What you already have in the way of financial resources
  • How much you want to control your company

As a rule, the more financing you need, the longer the funding process will take.  It’s important you’re clear on where your business is in the funding landscape:

  1. Seed Funding – getting things off the ground; often done by owner, family and friends
  2. Bridge/Angel Funding  – your business is showing signs of growth, revenue, and merit
  3. Venture Capitalist – when your business has signs of quick growth, as well as the potential for a quick return on investment

Keep in mind that there is no “right” or singular way to finance your business venture.  Although the pursuit of funding has been described by some as a “shark tank”, it should be comforting to know that there are definitely people out there wanting to invest in businesses for the right reasons (i.e. Crowd Funding).  Make yourself aware of the basic processes and do your due diligence.

Our future blog posts will expand on each of the three funding types, and explain the advantages and disadvantages for each one. Be sure to start thinking about the stage of business you are in and your risk level as you finance a business.