Bootcamp breakdown: securing funding
Debt, equity, loans and angel funds … These terms may seem like a foreign language to some. With Startup Alleghenies strives to make securing funding and learning a lot more manageable. A recent bootcamp on finance is now available in full online. We invited finance expert John Horell, EA, to give an overview of funding sources and tips for securing funding. Check out Startup Alleghenies for the full video and get the highlights here:
Debt vs. Equity
Debt is a common term that most Americans are familiar with. “To simplify, debt means you are borrowing money and making payments to repay that money with interest,” Horell explained. “With debt, you pay back more than you borrow because of the interest.”
“An advantage to debt is that you aren’t giving up any ownership of the company; the disadvantage is the bank has leverage on you for the term of the debt,” he said.
On the other hand, equity financing involves selling a portion of the company. “The main advantage of equity financing is that there is no obligation to repay the money acquired,” Horell said.
Funding Sources
Horell explained that there are various funding sources, each with its caveats. Ultimately, working directly with your Startup Alleghenies coach and accountant will be critical in determining the best funding options for your situation.
Here is a high-level overview:
Bank Loans
- Interest is tax deductible
- Easy to forecast expenses
- Collateral on loan
- SBA Loans – backed by the federal government, easier to get
Economic development loans- subordinated debt
- Micro loans
- SBA loans
- State Small Business Credit Initiative (SSBCI)
- Low-interest rate loans
- State enterprise zone loans
- Local city backed loans
Non-Traditional Sources
- Crowd funding – raising funds from a large number of people
- Friends and family
- Sharks
- Merchant cash advances
- Automated lending platforms
- Personal loan shops
Equity Investors will want a bigger piece of your success; they want to be a part owner. Strategic owners will bring more value as you gain partners.
- Angel fund- usually up to $100k
- Ben Franklin Technology Partners
- Venture capital/private equity $1m+
How to get ready to meet with banks and investors
Once you decide that you need to secure funding and you know what time of funding you are seeking, you’ll need to show the following:
- Clean books
- Business plan
- Tax compliance
- Simple capital stack
- Low current debt
- Low debt-to-income ratio
- Proven revenue growth
Still trying to decide which type of funding may be best for your business? Contact Startup Alleghenies for guidance at no cost.
Startup Alleghenies helps startup and emerging small businesses succeed by providing free coaching to entrepreneurs in Bedford, Blair, Cambria, Fulton, Huntingdon and Somerset counties. To access personal, one-on-one support from a coach in your county, including guidance, resources, tools and networking opportunities, sign up at startupalleghenies.com.
