If you need money to start your business, one of the first things you should focus on as an entrepreneur is understanding your options around raising finance. You (and any business partners) may have personal capital available to your start-up, but, in most cases, you will also need to consider other funding options, at least in the short term.
There are usually two main options for financing a business:
- Debt funding
- Equity funding
In simple terms, debt funding is when you borrow money from a bank or finance company (which you must pay back over an agreed period of time), and equity funding is when “investors provide money in return for a share of your company” . However, timing and the life-cycle of a new business is an important factor to consider when determining appropriate sources of funding.
Advice from Vusi Thembekwayo
Vusi Thembekwayo is an inspirational African entrepreneur. In the following interview, Vusi points out that “funding is important, but not necessary to start a business”.
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The next video explains the phases of funding for growing a business.
Video signpost: Funding a Startup
Funding a start-up often happens in phases, starting with your own money or perhaps a bank loan, seeking angel investors and/or venture capitalists, and, ultimately, through launching on the stock market.
You may not be interested in your company growing that big, but, whatever your entrepreneurial idea, you will still need capital.
This video explains the process of start-up funding. The content here is US-focused, but is a useful starting point no matter where you are based.
Over the following pages, we will look at how these stages work in more detail.