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Navigating capital: Exploring the difference between business funding & venture capital for small businesses

Venture capital calculator

The old saying, “You need money to make money,” isn’t always true, but it certainly is a lot of the time. The axiom can be applied to businesses across most industries, as capital can allow you to hire top-tier staff, purchase the best equipment, and renovate your facilities.

However, if you want to source funding for your business, there is no one-size-fits-all approach, so you will need to do a bit of research and make some decisions. One of the decisions you will need to make is whether you want to offer equity in return for capital or if you want to pay a loan back over time.

Luckily for you, we’ll be comparing both of these options (funding & venture capital) below to make your decision that much easier.

Venture capital for startups

Scope and purpose

Venture capital firms usually provide funding to early-stage and high-potential startup businesses in exchange for ownership stakes or equity. These firms play an important role in helping startups that have a higher risk but significant growth potential. These funds are often used to get early-stage businesses off the ground, so they are typically spent on things like property, marketing campaigns and equipment.

Sources

Venture capital funding typically comes from venture capital firms or individual high-net-worth investors.

Ownership and control

Venture capital firms often invest a large amount of capital into businesses in exchange for a percentage of equity. This means that you’ll be sharing both ownership and decision-making control with venture capital investors if you decide to take their money. While you may benefit from advice and guidance during your company’s early days, you may soon become frustrated with not having full control of your company. In some cases, venture capitalists can even drive your business in a new direction – one that you may not agree with.

Business funding for small businesses

Scope and purpose

Your standard run-of-the-mill business funding is usually used to support ongoing operations, expansion, or specific projects for established, operating and registered businesses. These funds are often utilised to purchase equipment, hire staff, launch new products, or as working capital.

Sources

Business funding can come from a host of different sources, but these are the most common options these days:

  • Bank loans: Traditional loans with fixed repayment terms.
  • Alternative funding loans: Loans with flexible terms often offered quickly through online platforms.
  • Business lines of credit: Revolving credit lines that can be drawn upon as needed.
  • Trade credit: Suppliers allowing delayed payment for goods or services.
  • Grants: Non-repayable funds provided by government agencies or private organisations for specific purposes.

Ownership and control

If you secure business funding through one of the methods above, you won’t be giving up any equity or ownership in your business. However, you will need to repay the loan based on the terms of the funding arrangement – nothing’s free!

Which source of funding is right for my small business – between funding & venture capital?

The first thing to ask yourself is, are you a startup or an established small business? If you’re struggling to pay the bills in your first 6 months, venture capital may be your best bet, as most banks and lending partners will not want to risk the investment. 

However, if you managed to turn a profit in your first year of business and are now looking to expand, alternative funding partners are your best bet. These funders are able to offer rapid turnaround times, flexible repayment terms and even advice on how to best utilise your new funds. As luck would have it, GroWise Capital is an alternative funding partner that offers up to R3 million within just 24 hours – sometimes as quickly as 45 minutes. If that sounds like something your small business could use, get in touch with us or apply online now.

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