Business
When is The Best Time To Get Funding For Your Business?
The use of funding can be essential to get a new business off the ground or enter a new growth period.
Whilst some businesses prefer to get their initial funding early on to get their business off the ground, there are other considerations as to whether you start small or only receive funding once you are profit making to secure better terms.
Other factors might be important such as the role of market and economic conditions, whilst some experts state that you should take funding wherever you can. We look into this a bit deeper.
Early Stages
The first critical factor to consider is the stage of your business. According to data from the Small Business Administration (SBA), most small businesses seek financing when they are in the startup phase or during early growth stages.
The SBA reports that approximately 62% of startups rely on personal savings as their primary source of capital, while 38% turn to external funding. This suggests that during the initial stages, entrepreneurs often bootstrap their businesses, utilizing personal resources before considering external financing options.
For certain businesses, a lot of initial capital may be required including the building of apps, SaaS platforms and those with important capital, asset and inventory requirements.
One of the dangers of early investment is that you may be giving away more equity that is necessary. Meanwhile at later stages, you might be able to dictate better terms because it is a more thriving and sought after business.
During Growth Stages
As a business matures and establishes a track record with stable revenues and profits, the need for external funding may become more essential.
US tech magazine, TechVolutionary, found that among established businesses (those older than 3.5 years), 27% sought external financing.
This statistic indicates that as businesses evolve beyond the startup phase and aim for expansion, the appetite for external funding increases.
“Entrepreneurs should carefully assess their business’s growth potential and capital requirements at this juncture to determine the most suitable funding sources,” says Richard Allan, founder of funding platform, Capital Bean.
This important funding round could be used to enter a new stage and grow revenue and profits. New funding can help boost marketing efforts, refine the development of the business with more experienced staff and to streamline processes. It could cover tax bills or help with hefty legal fees that come with a growing business.
Consider The State of The Economy
Economic conditions also play a significant role in determining the opportune moment to seek funding. According to the National Bureau of Economic Research (NBER), the state of the economy can influence the availability and cost of financing.
“During economic downturns, lenders may be more cautious, and interest rates could be higher,” explains Justine Gray, the founder of financial startup Dollar Hand. “On the other hand, during periods of economic growth, funding sources might be more abundant, and interest rates could be more favorable. Entrepreneurs keen on securing funding should be attuned to broader economic trends to make informed decisions about when to approach lenders or investors.
When The Opportunity Strikes
Market dynamics and industry trends are additional factors to consider. A study by CB Insights found that the most common reason for startup failure is a lack of market need for their product or service. This emphasizes the importance of timing in bringing a product or service to market.
Entrepreneurs should seek funding when their business is poised to capitalize on a market opportunity, whether it’s meeting an unmet need, entering a high-growth sector, or scaling operations to meet increasing demand. Aligning funding efforts with market trends can enhance the likelihood of success and attract better terms from investors.
Should You Get Funding Whenever You Can?
Moreover, a survey by the National Small Business Association (NSBA) highlighted that access to capital is a persistent challenge for small businesses.
Approximately 73% of small businesses surveyed reported that their funding needs were not adequately met. This underscores the ongoing struggle entrepreneurs face in securing the necessary financial resources. Understanding the competitive landscape and assessing the availability of funding in your industry can guide decisions on when to seek financing.
In conclusion, the best time to seek funding for your business is a nuanced decision influenced by various factors. The stage of your business, economic conditions, market dynamics, and industry trends all contribute to the timing of securing financial support.
Personal savings may suffice during the startup phase, but as your business matures and opportunities for growth arise, external funding becomes more relevant. Keeping a keen eye on economic indicators and understanding your industry’s financing landscape will empower you to make informed decisions about when to pursue funding opportunities, ultimately contributing to the sustained success of your business.