The Importance of Funding for Startups

A business without a funding source will flounder under the weight of its own debt. Funding is the fuel on which a business runs. A business can take different avenues to attain funding, and more than one option can be used. The chosen funding will depend on the business’ desire to be in debt, how solvent the business owners are at the time the business is founded and the amount of money a business will need to launch and maintain itself through a variety of events.

Seed Money
Materials, office supplies, equipment, a website and business cards all cost money and it has to come from somewhere. Seed money, from an investor, a small business loan or the owner’s savings account, must be raised to get the business started.

Cash Flow
A business owner needs to draw a salary to survive. If the business has employees, they must be paid. There are utilities to pay, insurance to buy and a laundry list of other expenses that must be paid for the business to survive. When a business first starts, profits are going to be low so business funding is needed to allow for the cash flow to meet expenses until profits pick up.

When a business outgrows its current location, or there is a demand for new goods or services, expansion becomes an option. A new location, product and marketing research, new services and additional staff if needed can be financed with business funding.

Accidents happen. Fires, floods, tornadoes and hurricanes can wreak havoc on a business and its bottom line. Although insurance will cover most catastrophic events, premiums and deductibles have to be paid and there needs to be money in the coffers to pay salaries while the business is repaired. Even less disastrous events can call for a rather large cash outlay. For example, equipment becomes outdated and computers need to be upgraded or replaced. A line of credit or corporate business card with a special rate can come in handy at these times.

A company can explore several options where financing is concerned. Traditional bank loans can still be attained by a small business. Lines of credit or corporate credit cards with special rates can also be an option. Keep in mind that attaining funding will mean presenting your business idea to potential investors, so you will need to be confident and know the business model inside and out. But if a business owner wants to bootstrap the business himself, a loan from a 401K, dipping into a savings account or investments from family or friends are options as well.

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