A Practical Guide to Business Funding

What is business funding?

Overview

Business funding is money a company uses to start, grow, or operate. It can come from internal cash flow or external sources such as loans, investors, grants, or crowdfunding. The right funding path supports growth while balancing control, cost, and risk.

Internal and external sources

Internal sources include retained earnings and cash flow. External sources include debt financing (loans and lines of credit), equity financing (selling ownership), grants, subsidies, and crowdfunding.

Common funding options

Debt financing

Debt involves borrowing money that must be repaid with interest. Examples: bank loans, lines of credit, term loans. Pros: predictable repayments; can preserve ownership. Cons: requires regular payments and eligibility criteria.

Equity financing

Equity financing means selling ownership stakes to investors in exchange for capital. Pros: no mandatory repayments; investors can provide expertise and networks. Cons: dilution of control and profits.

Grants and subsidies

Grants are funds provided by government programs, foundations, or non-profits that do not require repayment (subject to conditions). Pros: non-dilutive. Cons: highly competitive; use restrictions.

Revenue-based financing

Repayment is based on a share of future revenue until a multiple is repaid. Pros: flexible payments; aligns with revenue. Cons: can be more expensive than traditional debt at scale.

Crowdfunding and alternative funding

Crowdfunding platforms offer reward-based or equity-based options. Pros: market validation, accessibility. Cons: success is not guaranteed; may require marketing effort.

How to choose a funding option

Factors to consider

• Cost of capital (interest, fees, or equity dilution)
• Impact on ownership and control
• Repayment burden and timing
• Speed of funding and eligibility
• Use of funds and restrictions

A simple decision framework

1. Define your funding goal (growth, working capital, or risk management).
2. List pros/cons of each option in your context.
3. Run a cost comparison and consider non-financial factors like advisor support.
4. Choose the option that best fits your business plan and risk tolerance.

Steps to apply for funding

Prepare your documents

Business plan, historical and projected financial statements, cash flow forecasts, a clear use-of-funds plan, and any required legal documents.

Build a pitch or loan package

If seeking equity, prepare an investor pitch deck and executive summary. If debt, assemble a loan package with financials and projections.

Submit applications and follow up

Apply to multiple options, track deadlines, and respond promptly to requests for information.

Conclusion

Funding decisions should align with your growth goals and risk tolerance. Start with a clear need, build solid financials, and choose the option that supports sustainable progress.