4 Common Sources of Financing for Entrepreneurs

When starting a business, entrepreneurs need to consider the various sources of financing available such as venture capital, angel investors, business incubators, grants & more.

4 Common Sources of Financing for Entrepreneurs

When starting a business, entrepreneurs need to consider the various sources of financing available to them. Venture capital, angel investors, business incubators, grants, debt and equity, family and friends, and bank loans are all potential sources of funding. Each has its own advantages and disadvantages, so it's important to understand the different options before making a decision. Venture capital is a popular source of funding for high-growth companies in sectors such as information technology, communications and biotechnology.

The Business Development Bank of Canada (BDC) has a venture capital team that supports these types of companies. Angels are another option for entrepreneurs looking for funding. They tend to keep a low profile, so it's important to contact specialized associations or look for websites about angels. The National Angel Capital Organization (NACO) is a great resource for finding potential investors in your area.

Business incubators (or accelerators) are another option for entrepreneurs looking for funding. These organizations generally focus on the high-tech sector by supporting startups at various stages of development. MaRS is an innovation center in Toronto that has a list of business incubators in Canada, as well as links to other resources. Grants are another potential source of funding, although they usually require you to match the funds awarded to you.

BDC offers initial funding to entrepreneurs in the initial phase or in the first 12 months of sales. Debt and equity are the two main sources of funding. Government grants to finance certain aspects of a company may be an option, as well as incentives available to locate yourself in certain communities or to encourage activities in particular industries. Family and friends are also a great source of financial support when starting a business.

However, it's important to remember that you're putting your relationships at risk if you borrow money from them. Bank loans are another popular source of funding for entrepreneurs, although they can be difficult to obtain if you don't have a credit history. At Viva Paydays, they offer loans with no credit check and immediate approval, which can be valuable for new entrepreneurs. To find an angel investor, try going to business events and presenting your business idea to potential investors. You can also search the Internet for “angel investors” or “venture capitalists” in your area. Credit stocks are the long-term debt capital raised by a company and for which interest is paid, usually biannually and at a fixed rate.

Holders of credit shares are, therefore, long-term creditors. When it comes to companies, debt capital is a potentially attractive source of funding because interest reduces corporate tax profits. Diversifying your funding sources will not only allow your startup to better weather potential recessions, but it will also increase your chances of obtaining adequate funding to meet your specific needs. Retained earnings are an attractive source of funding from their point of view because investment projects can be carried out without the participation of shareholders or third parties. Financial analysts and investors often calculate the weighted average cost of capital (WACC) to calculate how much a company pays for its combined funding sources. When a business customer asks a banker for a loan or an overdraft service, they will consider several factors, commonly known by the mnemonic acronym PARTS. This last chapter begins by analyzing the various forms of stocks as a means of obtaining new capital and retained earnings as another source.

A share in the capital of a company can take the form of membership units, as in the case of a limited liability company, or in the form of common or preferred shares, such as in a corporation. Banks and other commercial lenders are popular sources of business finance. There are many more sources available for companies that don't want to go public through stock issues. An entrepreneur starting a new business will invest their own venture capital but will likely need additional funding from a source other than their own pocket. Funding represents an act of providing resources to finance a program, project or need. Incubators generally invite future companies and other start-ups to share their facilities, as well as their administrative, logistical and technical resources. Development groups may not agree to fund an entire operation but they make it much easier to obtain other private sources.