Running a business is a daunting pursuit, and one of the challenges new companies must deal with is obtaining funding amid the business ecosystem. Thankfully, Nevada ranks one of the best states for a startup, with more than 100 startups per 1,000 firm population. One of the reasons why Las Vegas businesses are successful is their access to financial funding. Having a sufficient amount of working capital or funds for expansion will spell the difference for small businesses.
Sources of Business Funding
If you saved enough money from previous employment or prior business, you could use this to fund your new business. You can also choose to get the needed funds from your 401(k). This funding type is ideal for small businesses that are yet to establish their business credit score. Business funds from personal savings can be problematic, though. For one, you have to consider if your own money is enough to capitalize your business. Second, how much of your money are you willing to risk for your business? If you aren’t sure of the risk, you might want to look into using other people’s money to fund your business.
Another viable option for business funding is securing a loan. Before you can obtain a business loan, you have to provide potential lenders with a solid proof that you can pay them back with interest. Some banks require borrowers to provide collateral in exchange for the monetary fund. In most instances, the lender will rarely care if the business is earning money or not, as they do not have any equity in the company. Their priority is to receive your payment plus interest.
The State of Nevada provides business grants to specific small businesses. These grants come from tax dollars paid by the citizens. For this reason, they follow strict compliance and measures to make sure that the funding is spent well. Note that grant authority differs among agencies and can be available through state and local programs, nonprofit groups, and other organizations. Some grants have specific requirements, such as matching the fund with other forms of financing.
Equity financing is another excellent option for securing funds for your business. This method of financing sources funds from an investor. In exchange for the funds, the investor will receive equity from the company. Some examples of equity financing include:
Angel Investors. Also known as private investors or seed investors, angel investors are high net worth individuals willing to finance investors. In return for the investment, they get equity in the company. Note that some investors may also choose to have a say in your business decisions. Groups of angel investors often have investment qualifications that your business must meet before you can receive funding.
Venture Capitalists. If you are seeking to expand your business and require a substantial amount of funding, venture capitalists will be your helpline. These companies often support small companies that are beyond the startup period. These investors would fund enterprises are willing to fund millions of dollars into your business. As a result, they would want to have direct involvement in managing and operating the business.
Small Business Administration Loans. This source of funding offers the most extended payment terms with the most competitive rates. Note, however, that startup businesses often find it challenging to seek approval compared with existing companies.
Royalty Financing. A relatively new concept, royalty financing is a type of business funding that allows entrepreneurs to get capitalization without giving substantial ownership to external investors. While this funding has similarities with loans, they are exempt from state and federal securities laws. Business owners do not have to deal with complicated filing and shell out money for legal fees. Some entrepreneurs prefer royalty financing because it allows them to curate deals with individual investors willing to receive dividends for their investments.
What Documents to Prepare to Secure Business Funding
When securing business funding, you have to prepare documents to show lenders and investors proof of your business. Some of the paperwork you have to present:
- Organizational Structure
- Business Plan
- Financial Projections
- Updated Financial Statements
- List of Assets
A small business requiring financial support should always go for the ones that will provide the lowest interest rates or the best equity deals. When faced with a difficult decision of which funding to choose, you must base your decision on which one will help you maximize your return on investment and success as a business.