Go Legal Yourself!, 2nd Edition

CHAPTER 6How Do I Get Funding for My Growing Business?

Accounting for more than 99% of all U.S. businesses, according to the Census Bureau, small businesses are the backbone of the country's economy and job market. They create many products and services used on a daily basis by consumers and other companies. During the life of almost any business, the owner will need to seek money to help with its growth or to keep it going through a rough patch.

The third most frequently asked question in the Growth phase is how to obtain funding.

How Do I Get Funding for My Growing Business?

There are two ways to externally fund a business: debt and equity. When debt is used, the investor receives a note for his or her cash. The note spells out the terms of repayment, including timing and interest. The benefit of using debt is that you retain ownership of your company. The downside is that you have an obligation to repay. If you fail to meet your commitment, the lender, under certain circumstances, can force the company into liquidation.

Then there's equity. An owner who uses equity to fund a business turns over an ownership stake to an investor in return for cash. The benefit is that there is no obligation to repay the investor. The downside is the owner has to give up a part of the company. This can entail losing some control over your business.

There are many different sources of equity and debt funding. Below are some examples of how you can utilize and implement the equity in your ...