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Types of Funding Sources

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18 views20 pages

Types of Funding Sources

Uploaded by

smjohnson
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Methods to Fund a Business

Exploring Traditional and Modern Funding Sources

Santina Johnson, Management Fundamentals

October 31, 2024


0
1
Introduction to Business Funding
Definition of Business Funding

Capital investment required to start or grow a


business

Importance: Funding enables operations,


expansion, and survival of the business
“Start where you are. Use
what you have. Do what you
can.”

—Arthur Ashe
Sole Proprietorship

0
2
Types of Funding Sources
Types of Funding Sources

1. Internal Funding

I. - Owner’s personal savings


II. - Retained earnings or profits reinvested in the
business

2. External Funding

III. - Borrowed or invested funds from outside


sources
Personal Savings and
Bootstrapping
Overview: Using personal funds to finance the
business

Advantages:

1. Full ownership control


2. No debt obligations

Challenges:

3. Limited by personal wealth and savings


Family and Friends Funding

Overview: Borrowing from family or friends

Advantages:

1. Flexible terms
2. Lower pressure than traditional loans

Challenges:

3. Can strain personal relationships


Bank Loans and Lines of Credit

Overview:Traditional loans from banks

Types of Loans:

1. Term loans
2. Lines of credit

Pros:

3. Access to large sums of money


4. Interest may be tax-deductible

Cons:

Requires creditworthiness and collateral


Small Business Administration (SBA) Loans

Overview: Government-backed loans for small


businesses

Advantages:

1. Lower interest rates


2. Longer repayment terms

Drawbacks:

3. Lengthy approval process, requires good credit


Angel Investors

Overview: High-net-worth individuals who invest in


startups

Benefits:

1. Investment without immediate repayment


2. Access to investor’s expertise and networks

Risks:

3. Partial loss of ownership and control


Venture Capital (VC)
Overview:Investment from firms focused on high-
growth businesses

Benefits:

1. Large capital influx


2. Strategic guidance

Drawbacks:

3. Significant loss of control, often for high equity


Crowdfunding
Types of Crowdfunding:

1. Reward-based (Kickstarter, Indiegogo)


2. Equity crowdfunding

Pros:

3. Gathers funds from a large audience


4. Validates the business idea

Cons:

5. Success not guaranteed; can be time-


consuming
Grants
Overview: Non-repayable funds offered by
governments, organizations

Advantages:

1. No debt, free capital

Challenges:

2. Competitive application process, strict usage


guidelines
Trade Credit and Supplier
Financing
Overview: Delayed payment terms from
suppliers

Benefits:
1. Helps with cash flow without
immediate capital outflow
Risks:
2. Can accumulate debt if not managed
properly
Alternative Funding: Fintech
Solutions
Examples:
Peer-to-peer lending, revenue-based
financing, and microloans

Advantages:
1. Faster approval, often less strict
criteria

Drawbacks:
2. Higher interest rates than traditional
banks
Trade Credit and Supplier
Financing
Overview: Delayed payment terms from
suppliers

Benefits:
1. Helps with cash flow without
immediate capital outflow
Risks:
2. Can accumulate debt if not managed
properly
Sole Proprietorship

0
2
Conclusion
Choosing the Right Funding
Source
Factors to Consider:

1. Business stage and needs


2. Cost of capital and repayment ability
3. Willingness to share ownership
4. Risk tolerance
Thanks!
Do you have any questions?

CREDITS: This presentation template was created by Slidesgo, and


includes icons by Flaticon, and infographics & images by Freepik

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