Get the Money Needed: What Is the Best Type of Capital Funding?
Are you a bootstrapper, but wish you had an angel on your shoulder? What does that even mean?
If you’re an entrepreneur, especially for small businesses, the type of capital funding you choose is life or death for your business. Wouldn’t you agree? We’re going to talk about money for a while, and why the only time we love all capitals is when it’s venture capital.
Oh yes… Venture capital, the holy grail of small business.
But do you need it? Do you want it? Are there other options?
There are—keep reading to find out what they are and how to decide which is best for your business.
What Types of Capital Funding Are There?
There are myriads of different financing for small business options out there. Capital funding generally falls into two categories—equity financing and debt financing. A quick list of different kinds of funding for capital might look like this:
- Venture Capital (VC)
- Angel investing
- Accounts receivable financing (AR)
- Royalty financing
- Crowdfunding (equity and non-equity)
- Mezzanine financing
- Initial Public Offering (IPO)
- SBA-guaranteed loans
Equity financing is giving up part of your ownership interest in exchange for money. Debt financing is taking a loan, and basically owing someone money. Imagine stock in your company is equity financing and bonds would be a form of debt financing.
What Type of Capital Funding Is the Best?
It’s hard to say what the “best” is because every business and every situation is different. There are clear advantages and disadvantages to every type of funding option.
Equity financing methods would be VCs, angel investing, IPO, crowdfunding, and Mezzanine. Debt financing uses accounts receivable, royalty, mezzanine, crowdfunding financing.
Mezzanine financing is a hybrid system (in accounting books it’s usually marked as equity financing). It helps to reduce risk in the eyes of venture capitalists and angel investors alike.
Knowing which is best for you means knowing you want to give up part of your ownership to others, or being unwilling to do so. Some options like VC, royalty, and AR financing depend on your business operating and showing growth first.
Speaking of VC financing, your chance of getting a VC is 1 in 1,000—or 0.05%. VCs on average only take on about 300 businesses a year.
In other words, don’t hold your breath.
Small Business Financing in a Nutshell
This brief guide on the type of capital funding right for you isn’t all there is to the business. Though, it will point you in the direction that is for you.
So you won’t get a venture capitalist to prop you up. That’s okay.
There are so many other options available. You don’t need to focus on the slim chance of venture capitalists coming in and saving you. It doesn’t matter as much as we think it does when you have other perfectly fine options available.
Check out our other awesome business and finance articles to keep yourself in the know and your head above water!