Types of Business Funding
Most entrepreneurs use multiple methods to access capital for their small businesses, including personal savings. External sources of financing fall into two main categories: equity financing, which is funding given in exchange for partial ownership and future profits; and debt financing, which is money that must be repaid, usually with interest. Grants and scholarships are funds that do not need to be repaid, and may be offered by government agencies, nonprofit organizations, or for-profit companies.
Funding availability can depend on how established or mature a business is. Financing a brand-new start-up is more difficult since there's no business track record yet. Because of this risk, it may be easier to attract equity financing than debt financing. Funds for a growing business will be much more available because the business already exists and has some financial statements to extrapolate from. For this reason, more mature businesses will find it easier to access debt financing. However, equity financing may be harder for mature businesses to find because the business, or industry, has plateau-ed with little forecast for growth. When creating a financial plan, entrepreneurs may find it useful to compare their business or potential business to industry standards for the same or a related industry or to a public company in the field which has disclosed financial information.
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