One of the hardest parts of entrepreneurship can be to secure funding, and misconceptions are prevalent.
Below we debunk some popular myths about startup funding.
Myth 1: When Starting a Business, Debt Is a Killer
Taking on debt (in the forms of loans and credit) are sometimes the only options available for some new businesses.
But this isn’t necessarily a bad thing.
Unlike equity financing, taking on debt allows a business owner to maintain full ownership and management over a company. Debt can be in the form of business loan or credit, which offers operating capital for a business contingent on its repayment of the loan amount in addition to interest and any other fees.
Paying off business credit card expenses on time will also help a company establish and build additional credit, which will help lower future borrowing costs and interest rates, help foster better relationships with suppliers and can even decrease insurance premiums.
Myth 2: Venture Capital Is the Primary Source of Funding
There is a common belief in the world of entrepreneurship that startups are built upon third-party funding like venture capital, angel investors and seed funding. Popular shows like “Shark Tank” and “Dragons’ Den” have ingrained the notion in the minds of viewers that raising venture capital is a must for all startups, but this is far from the truth.
While venture capital can definitely contribute to the success of an enterprise, it’s just one of many options for small business fundraising. Early investors come in many forms, including crowdfunding.
Myth 3: The Government Will Fund My Business
Federal grants are offered to a limited number of qualified enterprises in certain industries. These include the medical, scientific, educational and non-profit industries, but beyond that, qualifying for a government grant can be very difficult. In fact, even businesses within qualified industries can find it difficult to acquire government funding, and those that do usually need to supplement that funding with additional private capital.
Another misconception is that the Small Business Administration funds new businesses. The SBA is a very useful resource that, among other services, offers help connecting small businesses with local lenders in an effort to stimulate economic growth. It’s important to research all SBA and other government resources when starting up, just keep in mind that government grants and loans, even when successfully acquired, will rarely fund your entire startup phase.
There is no one correct way to fund a new venture. By researching all available funding avenues, you can make an informed decision about what’s right for your business.