What Type Of Business Funding Do startups Need?
Start-up funds as often referred, is the money that is required to start a new business, whether for office space, permits, licenses, inventory, product development and manufacturing, marketing or any other expense. Capital is the amount of financial resources needed to implement and execute a business plan. “Start-up capital is often referred to as seed money. From the aspiring entrepreneur designing new software in a home office to the executive of a multinational corporation looking to expand foreign distribution channels, launching any new business concept requires capital, or money, as a basis to execute the business plan.
Start-up finance comes in types and structures; two basic group types of funding are available to most businesses: debt and equity. Debt is a liability or obligation of a business. Yes, it is a liability. “Debt is generally governed by mutually agreed upon terms and conditions as provided by the party extending credit. These terms and conditions must be adhered to by the company, or runs the risk of default.” Those funds you often get from the banks or financial borrowers are debts. Equity is an investment in the business; usually doesn’t have set repayment terms, but the owners of the equity investments do have a right to future earnings — they may be paid dividends or distributions of profits and such funds are made available in exchange of a percentage stake in the venture. This is arguably the best for start-ups.
Why is this important?
You may be wondering whether debt or equity capital is best suited for your company. This decision really depends on the entrepreneurial stage, in terms of its operating history, industry profile, profitability levels, asset structure, future growth prospects, and general capital requirements, as well as the sources of capital amongst several other variables, but be careful with sentiment. At this stage, objectivity and focus is key, as it has the potential capacity to make or mar your venture’s survival and sustainability.
I always advise startup to seek equity. Depending on a lot of variables, it is sometimes considered difficult to get this type of funding for business but it guarantees your business, the support and survival to achieve much needed sustainability. Debt on the other hand is equally good for business. But it is sensible to timing and business needs. Every human body needs blood to survive but not every blood is good enough for every body because blood type differs in type A,B or O, and as a result, varies in impact. it is exactly the same for business funding type.
I m not 100% in support debt for startups. It is just too risky and limit your chances as being self-sustainable.