In this informative episode of Tiffany's Take, host Tiffany Grant dives into various business funding options to help entrepreneurs and small business owners understand the best choices for their ventures. From bootstrapping to grants, Tiffany breaks down the pros and cons of six popular funding methods, offering valuable insights and practical advice to ensure you make informed financial decisions for your business.
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Thank you for tuning in to this week's episode of Tiffany's Take. We hope you found the information on business funding options useful and insightful. Be sure to join us Thursday for another exciting episode, and until then, spend wise by spending less than you make.
Transcripts
Intro/Outro:
You know what it is? That's right. It's time to talk money with your money nerd and financial coach. Now tighten those purse strings and open those ears.
It's the Money Talk with Tiff podcast.
Tiffany Grant:
Hey, hey. And welcome to another episode of Tiffany's Take where I answer your money questions right here on the podcast.
So if you'd like your question answered, just go to www.moneytalk with and I'll be more than happy to answer. So I've been getting a lot of questions here lately about business funding and financing, right?
So I decided let's go ahead and do an episode on this where I go over the different business financing or funding types and then that way you can decide what works the best for your business. So let's jump right in. First, you have bootstrapping. Now, bootstrapping, you know, pull yourself up by the bootstraps.
That's just you financing your own business using your savings or revenue from the business. Now this is how most people start. So if you're currently bootstrapping, don't feel bad. This is how most businesses start.
The advantages of bootstrapping is you have full control over the business. You don't have anybody telling you what you can and cannot do. There's no debt, there's no external pressure.
You know, you don't have to make a certain amount if you don't want to. And so those are some of the advantages of just doing on your own.
Now, some disadvantages to that is if you have limited capital, of course that can restrict your growth. Also, it's a reliance on your personal assets.
So that's how you hear about people saying, well, you know, I cashed out my 401k or I used all my savings or, you know, whatever, or I got a HELOC on my house, whatever the case may be. That's because they were trying to bootstrap their business. Now, now this is for early stage businesses or small ventures with minimal startup costs.
So this is the best way to get in if you are an early stage business because you don't have that overhead to begin with. So like I said, most business owners just bootstrap from the beginning.
Then once they get to a certain point where they need more capital, they, they're, you know, stifling their growth. Then that's when they look at these other options. I'm going to go over. So the second one I want to go over is venture capital.
So venture capital is funding from professional investment firms in exchange for equity in your business. Now, equity in your business means some ownership stake. Okay.
Now some advantages of that is you can get access to large amounts of capital at one time. So that's a good thing. Also, a lot of venture capital firms will offer mentorship or resources from the investor.
So if you've ever watched like Shark Tank for instance, that is venture capital. Now some disadvantages is, you know, you might have some loss of control due to now part of your business is owned by someone else.
And then there's usually high expectations for rapid growth. Because let's be real, a venture capitalist is only going to invest in your business if they can make money.
And so they're going to be focused on, okay, what's the quickest way I can make my money back? And then some. So usually with these, they are expecting some rapid growth with your business.
So this is typically best for scalable startups, mainly in tech, biotech or other high growth industries.
So those industries where you can get money quick, you know, right at the cutting edge of technology or what have you, then that's typically what venture capitalists look for. The next way you can fund your business. So this is, number three is angel investors.
So these are individuals who invest their own money into businesses again in exchange for equity. So you might be saying, what's the difference between venture capital and angel investors?
Usually angel investors are one person where venture capital is where it could be a whole firm. So think Shark Tank. So Shark Tank is more like angel investors, but it's the same concept for both, if that makes sense.
So some advantages for if you're working with angel investors, they're more likely to take risks as compared to venture capitalists because like I said, it's usually an individual, so it's completely up to them what they decide to invest in. Also, they often provide mentoring and connections as well because they want to see you make money, so that way they can make money.
Some disadvantages to this is similar to venture capital where you will have some equity loss, so you have to give up a portion of your business. And then you may run into a situation where you may have conflicting visions for the business that are different than your angel investors.
So that might cause some issues. So those are some things to think about if you want to get money from angel investors.
This is best for startups in their early stages with a compelling idea or product, something that you can pitch to angel investors and they'll get excited about. That's what type of business would be best for this investment type. Number four is crowdfunding.
So this is Raising small amounts of money from a large number of people, usually via online platforms, or it could even be family, friends, you know, things of that nature.
So some advantages to this is it builds a community and initial customer base because the people that are investing in your product or service obviously believe in it. So they may be your first customers. There's also no immediate repayments or equity loss.
So and this is for reward based crowdfunding, so you don't have to pay these people back, they're just investing in your business and you don't have to give up any portion of your business for that. Some disadvantages though, it could be time consuming to create a whole campaign.
So keep in mind you have to put this out there, do some marketing, you know, do all of that legwork in order to get the money and then also keep in mind that not all campaigns succeed. So I don't remember the exact data, but I do remember like for instance, reading about GoFundMe campaigns, most of them don't hit their target.
So you also have to keep that in mind.
So this, this is best for maybe some creative projects, consumer products or businesses with a strong social aspect because like I said, you're going to have to do the groundwork and get the marketing and stuff out there. So people have to believe in it in order to make it work. Number five is bank loans.
So most people are familiar with banks and bank loans, but this is borrowing money from a bank with the agreed upon repayment terms.
So they say, okay, we're going to give you X amount, this is when it's due by, this is what the interest rate, make sure you make your payments and we're good. So some advantages of that, it retains ownership of the business so you don't have to give up any equity.
And there's usually structured repayment schedules so you know exactly how much you're going to have to pay and when.
Some disadvantages to this though, it does require a strong credit score and collateral and especially when you're first starting, they're going to use your personal credit in order to make a business credit decision. So it does require a strong credit score. And sometimes you might have to put something up as like a guarantee in order to get that going.
Also, interest rates can add to the financial burden. So you typically have an interest rate when you're dealing with the bank loan. So keep that in mind.
So bank loans are best for established businesses with a pretty predictable cash flow because you're going to have to keep paying that debt every time it's due and so you want to make sure that you have that consistent income coming in in that cash flow. And then last but not least, I've talked about this on the podcast before. Grants. I love grants. Grants are awesome. But what are grants?
Grants are non repayable funds provided by governments or private organizations. There are grants for for profit businesses. So that is one of the things I talked about in a previous episode when I went over business grants myths.
I'll make sure I link to that in the show notes. But you can get a grant as a for profit business. Money Talk with Tiff.
Over the years I've gotten about almost 30,000 in grants and mind you, this is non repayable so I don't have to pay that money back, but I could put it into the operations of my company. So anyway, the advantages of grants, there's no repayment, no equity loss, we're good.
And then it's also ideal for specific industries, especially nonprofits and research based startups. However, like I said, if you have a for profit business that don't fall into those categories, you can still qualify. You just have to find them.
Some disadvantages is usually they have a competitive application process because it's pretty much free money. And then sometimes they restrict what you can use the grant for.
So sometimes there's specific use restrictions, so you kind of have to keep that in mind as well. Some grants you can't just use for anything. Like there's some grants that say cannot be used for salary and so you can't pay yourself from that.
And you know, there might be other stipulations, so keep that in mind. Now this is best for businesses that align with program goals like sustainability or innovation or whatever the grant says.
So like for instance, there's grants for podcasting, there's grants for writing books, there's grants for for pretty much all types of stuff. So you just have to find the grant that best suits your business.
So just to recap really quick, the 5 was it 56 types of business funding options that I went over. 1. Bootstrapping 2. Venture capital, 3. Angel investors, 4. Crowdfunding, 5. Bank loans and 6 grants.
So if you're thinking about, you know, what should I do for my business? Just think about the pros and cons to each and see where you're at in your business and what makes the most sense for you.
Now again, if you have any questions that you want me to answer on the podcast, feel free to go to www.moneytalkwitht.com Ask Tiffany and I'll be more than happy to answer for you, but until next time, I hope you have a wonderful rest of your week and be sure to subscribe. Leave Reviews Connect on social at Money Talk with Tea wherever you are.
I am, and I'd love to connect with you, but you have a wonderful rest of your week. Bye.
Intro/Outro:
Thank you for listening, joining, and being a part of the Money Talk with Tiff podcast this week.
You can check Tiff out every Thursday for a new Money Talk podcast, but if you just can't wait until next week, you can listen to previous podcast episodes@moneytalkwitht.com or follow TIFF on all social media platforms at Money Talk with T. Until next time. Spend wise by spending less than you make. A word to the money wise is always sufficient.
