It is virtually impossible to start or grow a business without some outside capital. Whether it’s to get your business off the ground or improve your products or services, there are a variety of types of business financing for companies of all sizes and in different stages. It is important for business owners to understand their business financing options so they can make the best decisions regarding capital.
What Are the Different Types of Investor Funding?
Before we explain the different financing options, it is important to understand that most businesses don’t choose just one type of financing. Depending on the point in time, each of these can provide a boost of capital to help a business start, grow, or expand. Sometimes, there are hybrid forms that mix and match between these different types of investor funding options.
The most traditional way of obtaining financing is debt. The most common debt form is a term loan, which involves an entity providing a business with capital that they will return with interest in monthly payments.
One of the most common examples of this format are bank loans, which usually have reasonable interest rates but are also difficult to obtain. The business owner will need to demonstrate a solid credit score, an excellent business plan, collateral, and a willingness to invest their own capital.
As CFI points out, there are alternatives for people who haven’t developed a stellar credit history or operated their own business. “A government guarantee is an agreement between a financial institution and a government agency. It typically stipulates that if a borrower were to trigger an event of default that could not be resolved, the government agency would make the financial institution whole on its exposure.“
Another common way to raise money is through equity financing. In this model, an entity provides financing in exchange for ownership stakes and or control in your company. Individuals will occasionally provide equity financing, but this usually comes from firms.
Equity investors typically want to invest in companies that have significant profit potential so that their shares increase in worth. However, some equity investors will also invest in older companies that are restructuring or expanding.
Compared to debt financing, equity financing typically leaves a company with significantly more capital. With the firm or individuals taking as much as 50% ownership, the business owner will no longer be exclusively liable for their company. However, giving up ownership and control can also lead to conflict and different visions for the business.
Venture capital is available to a very specific niche: young technology companies with overwhelming potential. Venture capitalists usually choose early stage technology companies that have demonstrated the ability to be successful, but haven’t yet reached their full potential. By investing in startups, venture capital firms take major risks that also could have major rewards.
Venture capital is a form of equity financing. They provide capital in exchange for ownership stakes, which they plan to sell for a profit further down the line. Most venture capitalists have a long-term plan of gaining profits as the company grows.
Since their investments are risky and don’t always yield profits, venture capitalists generally invest less than $10 million into any given company. This allows them to maintain a large number of portfolio companies without being overly dependent on any of them.
While not as common or consistent as some of the other methods, angel investors can be a major help to startups. Sometimes, angel investors can be friends or family. More often, however, industry professionals serve as angel investors.
Another common form of financing that falls under this umbrella is crowdfunding. By motivating regular people to invest small amounts of money into your company, you can simultaneously market yourself and gain money.
What Does RevTek Offer?
With all of the types of business financing out there, we decided to create a simpler, better process. Our model is quite simple: we provide the capital, and you pay it back in manageable monthly payments based on your monthly, recurring revenue. To be eligible, you do not need to be profitable, but you should have a predictable recurring revenue of at least $500,000 a month. The benefits are substantial:
- We don’t take your equity.
- We don’t take any control or ownership.
- Our terms are simple and easy.
If you are looking to raise capital for your startup, choose RevTek. Our experienced team can provide you with the money you need to expand your tech startup. Contact us today to learn more about how we can help your business grow.