When to Use Private Funding When Starting a Business

When it comes to commercial funding, you have two options: funding through a bank and private funding. Getting a small business loan through your bank is simple enough, but there are actually many different forms that funding can come in when it is from a private source. There are private lenders, venture capitalists, angel investors, or it can simply come from friends or family. Starting a public crowdfunding campaign to raise funding is also considered private funding.

Private vs. Public Funding

So what is the difference between these two types of funding? The biggest difference is knowing what to expect. There is not too much variety in the types of loans you could get from a bank. Likewise, if you are rejected by one bank because of poor credit or another issue, chances are that nearly all banks will reject you for the same reason. If you seek out private sources of funding, however, you never know what you will find. It is possible that you could find a private lender that is less concerned with your credit score, or you could find an investor that is familiar with your chosen field and more willing to take a risk that the banks would not.

The Risks of Private Funding

A good way to think of these two funding options is that public is safer but more difficult to qualify, and private is riskier but more accessible. If you seek funds from a crowdfunding campaign, there is no guarantee that it will be successful. If you find an angel investor, they will usually require some level of influence over business practices and decisions. If you find a private lending company, the rates are usually higher than a bank’s and the payment plan is stricter or more demanding. That being said, there are also some unseen benefits of going this route. If a private source chooses to invest in your business, it may be because he or she knows a thing or two about your field. It can be a great opportunity to gain some insight, advice, and guidance.

How to Search for Funding

Finding public funding is a pretty straightforward process, but it can be a little trickier to find private funding. Networking is usually a vital aspect. You should search online for private lenders in your area, and reach out to professionals you know or who operate nearby. In rare cases, investors may seek out small businesses to invest in, but it is not a good idea to wait for the funding to come to you.

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