Loans stand as the most popular funding method for businesses. Nevertheless, that doesn’t mean it is the recommended way to go forward for you. It’s important to evaluate what stage your company is at.
Once you do that, it becomes possible to start to think about which type of funding works best. For example, as great as loans are, you may find them much less accessible when you are just getting started.
Imagine that you have an amazing idea for an online gaming platform. Customers will be able to bet on their favorite sports, play 777 slots, delight in poker, and take on the virtual casino, alongside other offerings.
Maybe you want to start things off with all the games you have available being played from a single site. Eventually, you want your business to grow and branch out.
Therefore, the aim is to transition to dedicated sub-sites for the casino 777 bet, and poker categories, while keeping everything else on the initial page. Perhaps you’ve identified that your business needs to get to maturity before you can adequately staff this kind of setup. Keep that in mind as you read through.
- Startup
At the startup stage, you’re just trying to turn an idea into something real. A lot of hard work is going to be necessary here, as you will need to build a customer base. That means a lot of effort must be put into delivering a consistent service experience.
Unfortunately, funding will likely be extremely hard to get here from external sources. That’s why most startup operations run on the capital held by the founder.
Apart from personal savings, other options may include crowdfunding campaigns or borrowing from friends and family. Even if it is possible to get a loan, doing so may not be a good idea just yet. After all, you don’t even know if your business model is something customers want.
- Survival
Now that you’re here, you know that you’re on to something with your idea. However, the business probably is just existing. Instead, you want to scale up operations and develop functional areas, as you work on obtaining assets and hiring more employees.
This is another of the hardest stages for any new company, which is why many of them will go broke. After all, you may be operating at a loss here. Here are some of the ways some cash may be injected:
- Grants – It’s possible to apply for a grant from private companies, as well as federal and state agencies.
- Angel investors – Some companies will have angel investors, which are people who financially support small companies in exchange for equity.
- Mirco-lenders – As the name suggests, you are dealing with very small loans here. Typically, these will be procured from individuals and not lending institutions.
- Self-sustenance
Sometimes, this is called the “success” stage. That’s because the company can finally begin to sustain itself at a profit. Many businesses will remain at this stage indefinitely. There is a sense of stability unless a disturbance comes in the form of a catastrophe, such as an economic downturn or natural disaster.
While you may be comfortable here, there may also be a desire to grow even more. As you can expect, doing so is going to require funding, which can come from any of the following:
- SBA loans
- Short-term business loans
- Venture capital
- Bridge loans
- Take-off
Assuming you now have committed to expansion, the take-off stage is next. Note that you have a choice to make at this point, as most entrepreneurs will either try to sell their venture or become a big business. Doing the former typically means starting something new.
You will usually find that working with a venture capitalist is the best way to go. That’s because they present the best option to get you Series B or Series C funding, which are explained below:
- Series B – The focus here is on capital that helps you to meet whatever demand there may be for your product or service. Venture capitalists will take an approach that involves greater market research and business development. Figures tend to range between $7 million and $10 million.
- Series C – Instead of meeting existing demand, Series C is focused on successful businesses that want capital to continue to scale up. Note that the funding obtained may achieve this through acquisitions or mergers with businesses of the same nature.
- Maturity
If you manage to reach this stage, you no longer have a small business. In fact, you may find that the biggest challenge you have is controlling a large pool of finances. Many companies will now consider an initial public offering (IPO), which means that people can become part owners of the firm by purchasing shares.
Just remember that you always want to maintain a controlling interest to keep the business in your hands. Be that as it may, shareholders will now have some say in the strategic direction of the company.
Remember to Approach Funding Correctly at Every Stage
Don’t just try to seek funding blindly with no direction. Think about what the financial requirements are. This will help you to understand how much you need at each stage, after which you can pinpoint where you will try to get it from.
Research is going to be very important here. Understand what kind of sources are available to you, and keep track of where the company is in its development before you make any hasty decisions.
Documentation is going to be a big part of convincing external parties to help. Therefore, you want to ensure that essentials such as business plans and credit reports are prepared beforehand.
Have You Started to Visualize Your Funding Strategy?
Now, you have a much better idea of how you should approach funding, depending on how much your business has grown. If you do it right and your idea is spot on, you should be able to get to a comfortable point of operations. Who knows? You may find yourself wanting to sell the company, so you can start the whole process again!
