If you’re a budding entrepreneur looking to overcome the financial barriers that stand in the way of starting your dream business, this blog post is for you!
In fact, we have 3 other blog posts that may be useful to you too! Welcome to part 4 of a multi-blog series on financial barriers to entrepreneurship. Part 1 talks about abandoning your career, part 2 is about building your team, and part 3 explores marketing. This blog post will walk you through funding options for your brand new business.
Access to financing can be tricky, especially when you’re just starting out. Pocketed wants to provide you with the resources you need to skillfully navigate your funding opportunities before diving in!
Loans are one of the first types of funding small business owners will think of. While it is a viable option, it’s important to know what you’re signing up for.
One of the great things about loans is that they’re non-dilutive! This means that you retain a 100% equity share in your business, so long as you haven’t diluted (given away ownership) through any other channels. This could include a Co-Founder or a prior investor.
So, the bank won’t take any ownership of your business — amazing! But they will want something else to reduce their risk in lending you fund (*note lend you funds). Instead, they will require you to provide a form of collateral to secure repayment of the loaned funds. This may come in the form of property, personal assets, or inventory and depends on the amount of money you are borrowing.
Loans are borrowed funds, so you’ll need to pay them back. If you don’t pay your amount due, the bank will seize your collateral to recoup their losses.
Over time, your loan will gather interest. Depending on the interest rate set by the bank, the longer you don’t pay them back, the more money you’ll end up owing.
Check out the Pocketed blog about grants vs loans for more information on if loans are right for you!
Investor funding is another viable option, but it might come later in your journey as an entrepreneur.
Typically, investors want to see high profitability (or promise of high profitability) and a cash flow cycle before investing in your business. They’ll want to ensure your chances of success are good before investing in you and your team. For this reason, it may not be the most logical option if you’re just starting out.
But, if you’re already far into your entrepreneurial journey and beginning to look at investor funding, it is important to understand the ins and outs.
Investor funding is dilutive, so you’ll likely be giving away company equity to investors (or the promise of future equity). In exchange for money, they’ll take partial ownership of your business.
But despite it being dilutive, investor funding is a great way to get large amounts of money for your business. Pocketed recently raised over $1M in investor funding.
If you’re curious in learning more about investors, we have a blog post that dissects the differences between grants and investors.
Donations are a good starting point for new businesses. These donations may come from family and friends who are looking to give you a boost. But they can also come from the public.
Donations are usually non-dilutive (some crowdfunding entails a promise of future equity, profit-sharing, rewards, etc., but there are many channels that do not).
Crowdfunding is a popular way to collect donations. In this method, you’ll set up a fundraiser on a platform such as Kickstarter and people can contribute to your business’ growth.
Free funds? Sounds great right? Not as easy as it sounds…
Your success in a crowdfunding campaign very much depends on your network, reach, and ability to communicate your value proposition to a (potentially) non-business person.
You must also do this in an ethical manner! Remember, these aren’t professional investors you’re dealing with and they won’t necessarily know the indicating factors of success.
Many times, these donations are small and you can’t fully rely on this type of financing to scale your business.
But, if you have a big following on social media, a deep network of those with discretionary funds, and a great business idea, it’s definitely worth a shot!
To read more about donations vs grants, check out our blog.
This brings us to grants, our specialty! Grants are non-dilutive, meaning there is no exchange of equity. They’re also not borrowed funding, so you don’t have to worry about paying them back! Pretty awesome, right?
Grants are earned funds. This means that you will apply for and secure funds for relevant projects in your business (think hiring a Marketing Intern, or executing R&D for an upcoming technical advancement).
The structure of grants is reimbursed funding, so you’ll typically need the cash on-hand today to fund your project and then you’ll be reimbursed upon project completion (or throughout the project duration).
This isn’t always feasible for cash-strapped business owners, however. That’s why Pocketed can help connect you with a grant-based financer. This can help you access the cash that you need today to secure a grant. Check out our blog if you’re left wondering “what is grant-based financing?”
But, most of the time it can be hard to find the right grant for you. Whether you’re looking for a hiring grant, a research and development grant, a training grant — it can be difficult to navigate confusing government websites and eligibility requirements.
Don’t worry! Pocketed has you covered. We centralize all available grant programs in one place and based on your personal user profile, we’ll show you the ones your business is eligible for. Save time and access funds faster with the support of Pocketed!
So, what are you waiting for? Create your Pocketed account today!