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What Are the Different Types of Small Business Capital?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 21 November 2016
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Small businesses may be able to access various sources of capital for their business whether it is a startup or an ongoing concern. The type of small business capital may be contingent on the stage of the project. For instance, it may be harder to get outside capital for a startup business than it will be to get the same for an ongoing business that is already doing well. The definition of small business may include a single owner business with one or two employees to a larger concern with two or more partners and more employees. Sources of small business capital include funds like commercial bank loans, personal seed money, angel investors and venture capitalists.

One of the services provided by commercial banks is the provision of loans to businesses, both large and small, for the execution of business projects. The provision of this type of small business loans depends on a lot of criteria that the business must meet before it will even be seriously considered for the loan. One of the issues the business must iron out with the bank is the provision of a suitable collateral, which is something most startup businesses may not have. The small business loan may also be in the form of a secured or unsecured credit line, with the determination of the exact terms depending on the policies of the bank or the financial institution offering the credit.

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Another form of small business capital is the personal funds of the business owner or owners. If these people have an appreciable amount of money, they could use this money as a source of capital for financing their business. Personal money may be in the form of money that the business entrepreneur has saved for such a purpose, or it may be in the form of an inheritance. Whatever the source, the advantage of personal seed money is the fact that it comes with no conditions or encumbrances in the form of interests, conditions for the granting of the money, and the possible loss of control of the business to lenders.

Angel investors and venture capitalists are other sources of small business capital. These are more like people who use their personal money to invest in promising businesses with the sole aim of gaining good returns on their investment. The main difference between the two sources of small business capital is the fact that angel investors are more flexible than venture capitalists in their requirements.

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