There's No Such Thing as Free Lunch: How to Choose the Best Fundraising Option for Your New Business - Entrepreneur

There's No Such Thing as Free Lunch: How to Choose the Best Fundraising Option for Your New Business - Entrepreneur


There's No Such Thing as Free Lunch: How to Choose the Best Fundraising Option for Your New Business - Entrepreneur

Posted: 05 Oct 2020 07:00 AM PDT

10 min read

Opinions expressed by Entrepreneur contributors are their own.

One in four U.S. businesses are not able to obtain the funding they want, according to a survey by the National Small Business Association. Funding can be a maze for even the most experienced of entrepreneurs, who need to choose from multiple paths—each with its own risks. Ideally, you'll seek the solution that's best tailored to your business needs but also to your personal financial status.

Every source of funding comes with its own specific costs. There's cheap money, and then there's expensive money. Each option takes a different amount of time, requires giving away a different amount of equity, and has a varying level of risk involved. Be sure to do your research, assess your runway and money management skills honestly, and look at your competitors for a general sense of how to successfully raise funds in your industry.

Here are the most common funding routes for startups, plus tips and insights from seasoned investors:

RELATED: Sign Up For a Risk-Free Trial of Our On-demand Start Your Own Business Course 

Revenue from customer sales

The least expensive form of funding is customer sales. It's a form of revenue that you don't have to give back to anyone, and you don't lose a portion of control over your business in the process. Naturally, the hard part is generating sufficient revenue from sales on a regular enough basis to keep your operations ticking over. Still, it's a popular choice for many founders who see early positive traction and have sound financial projections. You could even opt to sell your product or service before it's officially launched in order to cover any expenses you incur in the construction phase.

Pros: Don't have to pay money back or give up equity

Cons: Difficult to generate enough money to sustain operations

Difficulty: Medium - leveraged through early profit

Business type: Subscription-based companies, pre-sale models

Personal debt

Business loans, credit cards, and lines of credit account for roughly three-quarters of financing for new businesses. In fact, it's unusual to meet an entrepreneur who hasn't gone into debt starting their company. Most investors want to see that you have skin in the game, meaning that you've personally contributed to your own business - whether that's opening a new credit card, borrowing against your retirement savings or against your home. 

Personal debt is high risk, high reward. The advantages are that you don't have to give up equity and you have total control of the funding as the money you borrow is attached to you personally. That is also the downside. If your business doesn't perform as you expect, you are the person who loses out. Compared to other funding options, where everyone loses out in a poor performance scenario, personal debt is a heavier burden to carry. You also won't be paid back for your personal investment as you can't raise money to cover that debt.

Ramin Behzadi, general partner at 7 Gate Ventures, notes that personal debt is typically used to maintain the status quo in a company and not for immediate short or mid-term growth—that comes from equity rounds.

If personal debt is the right funding path for you, check in advance that your credit score makes you eligible for the amounts you'll be requesting, and speak with a financial advisor before committing to new lines of credit. 

Pros: Don't give up equity and it shows investors you have skin in the game

Cons: Debt is tied to you personally and you can't raise money to cover the debt

Difficulty: Medium- leveraged through financial institutions but dependent on personal credit history

Business type: Various

RELATED: Sign Up For a Risk-Free Trial of Our On-demand Start Your Own Business Course 

Government and bank loans

Getting a government-backed loan is a good funding route but be aware that you'll have to jump through some hoops. These types of loans aren't particularly common and typically only apply to founders who have lots of assets or income. They also vary in amount and conditions, so you have to find information from your local economic agency to suss out if it's right for your startup. The U.S. Small Business Administration is useful for local-level government funding, as is the State and Territory Business Resource.

Gabe Zichermann, chief executive of Failosophy, suggests that if you want to secure funding via a bank loan, identify the bank that you have the closest relationship with and ideally where you have all your accounts, so that they can see your financial position. As well as offering a standard business loan, bank credit processors can also provide financing where you borrow money against your projected revenue streams. This option is preferable for startups that have recurring revenue but can't raise capital, for example, restaurants, retail stores, and wholesalers.

"Bank loans have the same benefits as personal debt in terms of keeping equity and control, but they often aren't viewed favorably by venture capitalists," Zichermann adds. If you have debt on your company books when approaching investors, they'll know that they aren't your primary payback group and may think that the money they give you would only be used to repay the bank.

To listen in to Gabe Zichermann and Ramin Behzadi discuss different options to find funding for your business sign up for a risk-free trial of the Start Your Own Business course and check out our live webinar on 10/07 at 3 pm ET.

Remember, any loan you receive will have interest rates, so you'll eventually pay back more than you took out. If you can't afford the extra amount, consider looking to friends and family for investment.

Pros: Keep equity and control, and can borrow against projected revenue streams

Cons: Hard to obtain, will be off-putting for venture capitalists

Difficulty: Low -leveraged through formal financial institutions but dependent on location and early traction

Business type: Startups with recurring revenue like restaurants, retail stores, and wholesalers

Friends and family

Raising money from people who know you is a relatively safe choice for founders. Most of the time, friends and family don't have to be sold on your business because they are investing in you, and simply want to help your company grow. They are also less likely to request ownership in your business. However, you may feel a stronger obligation to return their capital because of the relationship you share with them. This option is lower risk than others, but can be higher pressure.

To get started with investment from friends and family, make a list of the people who have money, would be most interested in your idea, and organize a time to pitch them your business. 

Pros: People invest in you personally, they don't have to be sold on your business

Cons: Greater obligation to pay people back

Difficulty: High - leveraged through personal network

Business type: Various

RELATED: Sign Up For a Risk-Free Trial of Our On-demand Start Your Own Business Course 

Angel investors

For startups, angel investors are often the ideal pathway to funding due to their more "human" touch and hands-off involvement in businesses. Angels tend to work on a case-by-case basis, so they can be more generous with their investments, plus more flexible about returns and equity. The catch is that angel investment is often the result of a serendipitous meeting, meaning it can take anything from days to years to find.

Nonetheless, there are ways you can boost your exposure to angels through networks like AngelList, as well as browse investor groups by location, university, and cultural representation. Zichermann recommends finding angels that have experience in your industry and overlap in your circles of interest. He also notes that if you need to continue developing your business while you search for investors, accelerator programs can expose you to lots of angels. But keep in mind that some programs will ask for equity in exchange, meaning you'll give up some control for the privilege of being seen. 

Pros: More flexible about returns and equity, less risky than business loans

Cons: Hard to find suitable angel investors

Difficulty: Medium - leveraged through personal and professional networks

Business type: Various

Crowdfunding

One of the newer options for fundraising, crowdfunding is best-suited to companies that have a physical product. Crowdfunding means you don't have to give up equity or accumulate debt, you can earn social proof as you collect investments, and you can build a pool of loyal advocates for your product from the get go.

The downside is that crowdfunding requires a lot of time and effort to launch the campaign itself, and once it's live, you have to continuously market it. You also have to deal with a number of investors at once, which can be taxing when you're busy running the company. For these reasons, crowdfunding is a longer route to funding and not one that high-growth startups typically use, but it has proven to be very effective for early-stage companies.

Pros: Don't have to give up equity or accumulate debt, earn social proof as you fundraise

Cons: Requires time and effort to launch campaign, have to work with multiple investors

Difficulty: High - leveraged through crowdfunding websites

Business type: Industries with physical products

Venture capitalists

The last and most expensive fundraising choice is to turn to venture capitalists (VCs). This is far more exclusive than the other options listed, and primarily applies to startups in technology, biotechnology, and clean technology spaces.

For perspective, 1,500 startups get funded by venture capitalists in the U.S. every year, compared to the 50,000 that get funded by angel investors. VCs can offer significant investment amounts and years of expertise—which is what makes them so appealing—but they also expect a lot more control over your business. Some VCs will even appoint their own board of directors within your company.

Related: Sign Up For a Risk-Free Trial of Our On-demand Start Your Own Business Course

Similar to angel investors, if you want to move forward with VC funding, you have to target firms that invest in your stage, industry, and ideally, have a shared connection with someone in your current network. Warm introductions are the best stepping stone for VC funding, and pitch competitions are valuable too. Behzadi suggests that a "warm introduction can be initiated from a person within your immediate connections/relationships or it could be cultivated or made with some proper efforts."

Likewise, Kevin Lavelle, senior vice president at Stand Together, says "you should look for a healthy balance of intellectual humility about the challenges of growth consumer investments, and intellectual curiosity about the space." 

Keep in mind that obtaining investment from VCs firms takes a long time, normally around one year in total.

Pros: Higher investment amounts, expert knowledge and connections

Cons: Expect greater control in your company, takes a long time to organize

Difficulty: Low - leveraged through events and network but dependent on industry and profit

Business type: Technology, biotechnology, and clean technology spaces

Before charging ahead with fundraising, think carefully about how different pathways can accelerate your company's vision, and what you might have to sacrifice in the process. Don't feel pressured to accept the first funding offer that comes your way when there could be a smarter route for you. The investment you accept will ultimately be a reflection of what you expect and want for your company.

Now Build Good Business Credit and Get Funds Without Collateral, Credit Quality, or Cashflow - MENAFN.COM

Posted: 05 Oct 2020 09:30 PM PDT

(MENAFN - GetNews) October 5, 2020 - Good news for entrepreneurs who are in dire need of funds to start a venture, M & M Business Holding has launched its business finance suite, a program designed to give startup and existing business owners access to flexible financing options. Businesses with bad credits are also invited to take advantage of M & M's offer to fix and increase their credit scores to enhance their business profile. This often makes the difference with regard to successful loan applications.  

Business owners have expressed delight at the finance suite program. Candidates who are successful with their application for funds will not need to worry about spending their own money, risking personal credit, or even borrow from family or friends. At a time when the economy has taken a beating, building a business would definitely require ample capital. M & M's services will ensure that applicants will not have to deal with difficult financial institutions offering stringent terms.

So far, clients of M & M Holding have lauded the agency for making finance services hassle-free. Using the business finance suite program, individuals have enjoyed rejuvanated credit scores simply by providing their EIN numbers. Unlike most complicated processes, personal social security numbers are not required, and applicants do not need collateral, good personal credit, or existing cash flow to become eligible. Startup and existing businesses also get it easy with the finance suite. Approval for funds is granted irrespective of personal credit quality. The agency offers its services to both large and small ventures.

With its affiliation to several credible and legitimate financial institutions, M & M Holding has cemented its status as a trustworthy agency. Depending on their eligibility status, business owners may obtain between $500,000 to $150,000 in financial assistance.

About M & M Business Holdings

M & M Business Holdings is a company dedicated to helping start-ups and entrepreneurs with capital and credit necessary for business growth and expansion. It projects itself as a company offering credit support when the bank says NO. Providing fast track solutions to businessmen who can acquire funds approval from anything between 24-72 hours, the company is a one-stop shop for different loans tailor-made to suit an entrepreneur or business needs.

M & M Holdings provides excellent back end support with an expert team of financial advisors ready to help applicants at every step of the way. 

For more information: [To enable links contact MENAFN]

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Company Name: M&M Business Holdings
Contact Person: Kre'Tonia Morgan
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City: Houston
State: TX
Country: United States
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The Best Peer-to-Peer Lending Companies in 2020 - Fortunly News

Posted: 05 Oct 2020 08:39 AM PDT

If you've been denied a loan from a brick-and-mortar bank or conventional online lender, there are still options for you to explore. Peer-to-peer funding is offered both to businesses and individual applicants alike. It works differently from the financing you may have received or applied for in the past.

So, how do person to person loans work? P2P lending sites connect prospective borrowers directly with suitable lenders. Instead of borrowing from a financial institution, applicants receive funding from an individual or group of investors willing to loan them the money. By removing the middleman, P2P lending platforms are able to offer better rates and terms than traditional lenders.

However, given that no two lending marketplaces are the same, it's important to compare multiple options before choosing the best provider for your needs. To help you find the most suitable option, we broke down our methodology into two large sections. The first part is devoted to loan characteristics, while the second focuses on borrower requirements.

Loan Characteristics

Peer-to-peer loan companies have only been around for less than two decades, however, the number of competing online lending marketplaces is already considerable. Although most of them work in the same basic way, providers can vary quite a bit in their funding types, loan amounts, interest rates, repayment terms, and target clientele.

To help you structure your search, we've scoured the online P2P marketplace and made a list of the most important feature to take into account while searching for the best peer to peer lending site:

Loan types offered

First of all, it's important to mention that some P2P loan websites focus on providing business loans, while others only serve individual consumers. There are also online lending marketplaces where both businesses and individuals can find suitable funding options. However, before checking any other loan characteristics and eligibility requirements, make sure that you are in the right place.

As far as funding types go, term loans (or installment loans) are among the most common options for both personal and business loans. Many peer-to-peer lenders also provide personal and business lines of credit, merchant cash advances, invoice factoring, and working capital loans. Note that some providers specialize in a single financial product, while others provide a wide range of financing types.

Speed of Approval

One of the most valuable features of online lending marketplaces is that borrowers don't have to wait for months to find out whether they've qualified for the loan they've applied for. Not only do the best peer-to-peer lending sites process and approve personal and business loan applications at record speeds, but most of them even make the funds available to the applicant in less than a few days.

Term Length

Term length or loan term is essentially the amount of time you have to repay the money that you have borrowed. Depending on the loan type and the provider's repayment policies, repayment periods can be as long as a few decades or as short as a few months. In addition to term lengths, we also suggest you take repayment term into account. To avoid late payment fees, make sure that you'll be able to keep up with your monthly, weekly, or even daily repayment schedule.

APR and Fees

When applying for a loan through a loan marketplace, you should also make sure that you are aware of all the peer-to-peer lending rates. Annual percentage rate (APR) is there to give you an estimate of how much a loan will set you back in one year. Keep in mind that APR represents much more than just the interest rate. In fact, it also includes all the additional costs that come with a loan – such as origination fees or closing costs. Note that some providers also charge non-sufficient funds, late payment, and prepayment fees.

Guarantees and Collateral

While most personal loans are unsecured, business funding usually requires personal guarantees and collateral in the form of business assets (equipment, inventory, vehicles). Owners of established businesses usually opt for secured loans as they come with lower interest rates, while those who are just starting out go for unsecured funding options.

Borrower Qualifications

When comparing the best peer-to-peer loans, it's also important to look at multiple providers' eligibility requirements. Most lending platforms display the qualification they require on their websites. This way, prospective borrowers who can't qualify don't have to waste their time filling out applications.

Given that taking out a loan is a serious responsibility, P2P platforms make sure to consider multiple factors to evaluate an applicant's overall financial situation before they extend an offer. The most important factors include credit score rating, time in business for business applicants or years of credit history for individual applicants, and annual revenue.

Credit Score Rating

It's not a secret that it's much easier to get a loan with strong credit. However, most P2P lenders believe that a turbulent credit history shouldn't prevent anyone from fulfilling their goals in the future. We made sure to look at lending marketplaces that look beyond credit score when evaluating loan applications and managed to find some of the best peer-to-peer lending for bad credit.

Time in Business

Another advantage of peer-to-peer commercial loan options is that time-in-business requirements aren't as strict as those a bank or a credit union may impose. While traditional funding sources are only available to established businesses that have been operational for more than a decade, peer-to-peer business loans are attainable even to those that are still at the beginning.

As far as personal loans go, the lender may look at the length and steadiness of your credit history. The good news is that there are companies that accept applications even from those consumers who are just starting to build credit.

Annual Revenue

If you've ever shopped around for business or personal loans, you'll probably know that even the best loan companies won't extend you an offer unless you prove that you already have a good income. Fortunately for prospective borrowers whose financial situation isn't ideal, the best peer-to-peer lending organizations have options for young applicants and fledgling entrepreneurs.

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