Most small-business owners need either loans or some other sort of funding to get their business going or to expand if and when that time comes. Before making the decision on how to fund your business needs, it helps to explore the options that are out there.
There are basically two main choices to fund your business: loans or investment. You also may be able to qualify for certain government grants depending on your type of business. Each type of funding mechanism has both pros and cons, and it’s important to carefully weigh the benefits and drawbacks of each.
Loans are a good way to fund start-up costs and expansion. The advantage of a loan is that you create a temporary liability that disappears after you make your payments. On the other hand, loans can be hard to get, and you may have to put up collateral or make a personal guarantee that could cause you to lose property or assets if your business fails.
Taking on investors can be a good idea if you have the kind of business that has the potential to grow large and needs a lot of capital to fund startup and fast expansion. One big advantage with investment is that the investors take on the risk of failure. If the business fails, you owe the investor nothing other than whatever his or her stake in the company is worth at the time. Investment does have some downside however. Not only do you give up an ownership stake in your company, you also may have to cede some control over decision-making
Government grants are available to certain businesses, and the advantage is that it basically is free money. However, grants have drawbacks. They are very hard to get and may have very strict rules about how you use the money.