Business Funding Options: Which One Is Best For You?

Top 5 Business Financing Options:

• Crowdfunding
• Bootstrapping
• Grants and schemes
• Venture capitalists and angel investors
• Personal and business loans

No matter how brilliant or innovative your business idea may be, you can’t turn them into a reality if you don’t have the budget to make it happen. This is why Shark Tank is quite popular!

But aside from reality TV, where can you actually look for funding? There are many different ways to secure funding for your business. Each one comes with caveats, so what works for some business may not work well for you. It’s important to know the different ways of funding to pick the best one that matches your business.

Read five of the most common business funding options New Zealand here.

1. Crowdfunding

If you believe you can convince strangers on the internet that your business can contribute to the greater good, choose to crowdfund. It’s popular for businesses dealing with creative works, but it’s now becoming a common way to raise funds for financial projects as well. In a similar sense, this works like a charity fundraising campaign.

Crowdfunding usually happens on online campaign websites like GoFundMe and PledgeMe, featuring different businesses, ideas, and products. Simply explain your business concept, and hope for people to back you up. Some people may require you to elaborate more on your ideas or ask for incentives like shares and gifts when your company becomes a success.

Be extra wary of your intellectual property 

You’re sharing your ideas with the public, making it very vulnerable to intellectual theft! Some people pretend to fund your ideas but they simply want to steal them and start their own business ventures from it. It can be very frustrating when someone steals your intellectual property, especially as you may find it difficult to appeal your case. It’s very important to be extra wary of what you share on these crowdfunding websites.

Don’t start if you can’t finish

If you can’t commit through and through, crowdfunding may not be the best way to fund your business. As crowdfunding relies on trust between you and — essentially — strangers, you can never be too sure. They can always back out of their funding. By law, you’re required to fulfil your promise to backers.

2. Bootstrapping

Why ask other people for extra funding if you already have enough money to kickstart it? Also known as bootstrapping, this is the practice of funding your own business. This keeps the costs low and risks lower because you spend your own money. If something goes wrong, you can always go back up without considering investors.

Bootstrapping works extremely well for businesses that don’t require much capital like buy-and-sell. Once businesses gain profit, it’s what they usually use to keep their business up and running. Do note that with small capital comes small yet consistent profit for you.

Bootstrapping can rack up huge debts if it’s not for you

While bootstrapping may look like ‘the’ option when starting a business, it can be a bad choice. If the nature of your business doesn’t generate profit easily, you may rack up huge debts. Since you need the funds to keep your business in operation, you may have no choice but to borrow money over and over again.

Some successful businesses started with bootstrapping

Some of the biggest companies you know today such as Apple, Facebook, Microsoft, and Dell grew their business using bootstrapping. Once they grew their business into something with potential, they started to look for investors who can help them grow their business into the tech giants that they are today. You may need to weigh if debts from bootstrapping can be worth it for something more valuable later on.

3. Grants and schemes

When bootstrapping just won't cut it, you can try your luck in applying for government grants. Create a solid business plan or portfolio, and send your proposal to the corresponding government agency. Grants are generally free money, which is why it's always worth looking into for more funding.

Bureaucracy and lots of paperwork

As easy as getting grants for your business sounds, know that at times, it may actually take much longer than usual to apply for one. Competition can also be tough as there's possibly hundreds of other businesses vying for grants in your area. If you're only starting out and want to try this, take all the time to research all the necessary paperwork and contact information.

4. Venture capitalists and angel investors

If you want professional insights for your business, one of the best ways to do this is through venture capitalists and angel investors. They have the fund to lend to young and start-up companies with a huge potential for returns. As frequent investors, they also have helpful insights on how to grow your business.

Angel investors are usually wealthy individuals — not necessarily a part of an investment company — that simply want to help other entrepreneurs. On the other hand, venture capitalists are large and established companies, which can be both financial and non-financial. Some of the biggest businesses that grew with this funding type are Google and Yahoo.

Both can ask for a share in your company

One condition for venture capitalists and angel investors are shares of equity in your company. While it’s not always a common condition, some may also require a voice for the direction of your business. While it may not be always up to your liking, their expertise, paired with their trusted experience, can make your borrowed money worth it.

Approach Regional Business Partner or your local chamber of commerce

To find trusted angel investors and venture capitalists, speak to your local chamber of commerce or Regional Business Partner. They can give you a list of trusted investors to pitch your idea. Otherwise, you can also tap into your personal networks for a list of investors who have also pitched in their business developments.

5. Personal and business loans

If you’re out of options for funding, you can always borrow money through loans. There are a variety of choices available, including microloans, credit cards, P2P lending, among others. However, some of the most popular ones are personal and business loans. They offer low-interest rate lending over long repayment periods.

If you’re still at the early stage of your business, personal loans are the most recommended. Some banks or lenders may require proof that you can pay a business loan. So if you’re still polishing the legwork of your company, get personal loans first. Once your business becomes more stable, get business loans.

Loans are ideal only during the early stages

Personal and business loans are very useful to secure funding for your business. However, this should only be maximised in the early stages of your business. If you continue using loans to fund your business, it may actually drag your business down, as you can end up using most of your profit for loan repayments.

Shop around for low-interest loans

Banks and lenders have different interest rates and repayment periods, so it’s recommended to always shop around. Aside from the biggest banks such as ANZ, BNZ, and Westpac, check out rates from smaller providers such as QuickCash, Simplify, and Quick Loans. They may have better deals, which you can commit to repaying in the long run.

Planning to start a business? You can definitely use your KiwiSaver funds for itt! Compare and save using our KiwiSaver comparison tool, right here at CompareBear.