Adequate funding is key for solid business strategy. A funding plan from the very onset can mean less birth pains for just about any business. Top strategists at Pine Advisors present the pros and cons of business capital planning: should you go private or public? Here’s the short version:
Growing a Business with Private Capital
Private funding refers to business capital provided by non-government sources: individuals, communities, or organizations. While government sources can see business funding in the long run, individuals may view funding in terms of short-term profit. As well, private finance enjoys more privacy and secrecy due to transparency laws governing public funds.
Strengths
Many business plans look to private lending channels for larger capital as well as for faster, simpler application processes. Private investing can be more flexible, have less competing applicants, and less rules and regulations compared to the public funding option. In addition, instead of charging interest, the investor may own part of the business and thus more motivated towards more venture support.
Weaknesses
Funds may not be as large or as stable as public sources and may not be enough to include indirect costs. Funding limits may mean that not all business costs are covered. Finally, public perception may be that private funding is not as rigorous as public funding.
Grow a Business with Public Capital
Public funding refers to local, government, state or federal resources such as taxes and levies that you access as cash, check, or bank transfer (aceprject.org). Applying for public funding can be a complex process. You can understand the pros and cons to see if this option best fits your business plan.
Strengths
Public money can be the cheapest, largest, most stable source of capital for business sustainability. If you prefer a single investment source to avoid having to answer to different investors, then public funding is a good option, particularly for non-profit businesses. Additionally, public funding adds credibility to the business and helps to attract even more funding from other sources. Finally, if the business plan includes advocacy for any social issues, this is useful to secure public funding. Furthermore, it helps get good PR for your brand, which can be more instrumental than any other catalyst for business growth.
Weaknesses
Complex procedures, drawn-out deliberations and bureaucracy can mean that public money is attached to too many conditions and restrictions. Proof of viability, infrastructure, qualified key staff, proper accounting and auditing procedures may be among the many requirements. The application and approval processes can be slow, even difficult. As well, economic conditions can cut off public funds. Finally, accepting public capitalization can force changes on the business from mission and vision down to base physical details. Essentially, you have less control over your company’s direction and objectives.
For better, more informed decisions in business planning, it’s best to fully explore your best options for capital sourcing strategy. With even more details and key business scenarios, the Pine Advisors team ensures that you’re ahead of your game, right from the start.