Do you want to become a successful businessperson? Are you looking for ways your company can grow? If so, you need to know about two important types of funding. In this article, we are going to look at dilutive and non-dilutive funding.
By the end of this article, you should have a better understanding of these two types of funding and hopefully be able to make a better choice for your business. Let’s take a look at these types of funding in-depth so you can find out which one is better suited for your business needs.
What is Non-dilutive funding?
Non-dilutive funding is a special kind of funding a company gets from investors. In this type of funding, you don’t have to give up control over your business or company. Most people know that they have to sell shares of their company when they are looking for some investment.
Non-dilutive is a particular funding type in which you do not need to lose your business’s equity or ownership. There are different types and methods through which you can get this funding for your business that we will look at in the upcoming sections.
Before that, you should know about the major differences between dilutive and non-dilutive types of funding. Here is what you need to know for a better understanding of this topic.
Difference between Dilutive and Non-dilutive funding
The big difference between these two funding types is the ownership or equity ratio. In dilutive funding, you have to sell the equity of your business to someone in exchange for an investment. Put simply, you have to sell a share of your business that will make the buyer a shareholder of the company and receive a cut of the profit that your company makes.
Non-dilutive funding is the opposite. In this type of funding, a person or company doesn’t sell shares but can receive an investment without any equity sharing. There is no dilution in the actual ownership of the company’s board of directors or any current investors.
Which one is better?
Whenever someone is talking about dilutive and non-dilutive funding, I always wonder which one will be better for my business. Do you have the same question in your mind? If so, this article will help clear most of your doubts regarding the advantages and disadvantages of either to your business.
Being a businessperson, you might be aware of the importance of your company’s share structure. It might be difficult for you to make someone a partner in your business and share the profit later. In such conditions, non-dilutive funding will be a better option for you to choose.
However, you might be worried about less funding that your business may get in the future. In such a situation, you might be thinking that adding a person or team as a partner to your business for more funding in exchange for equity isn’t so bad.
The funding type you get depends on your investment requirements. For some cases, a non-dilutive type of funding is better because it will end means you get to keep more of your company and keep more profits. The main reason is that your business ownership will be in your hands and you will be able to fulfill all the requirements too.
Non-dilutive funding is also the best option for you when you are looking to grow your small business. But if you are investing your money, you should pick the dilutive funding type. With this, there are huge chances that you will get profit as well as ownership of a company to a specific percentage.
Types of Non-dilutive funding
If you have understood the importance of non-dilutive funding, you might be looking for the best type. Here are some types of this funding through which you can receive funding for your business and achieve success.
Loan
It is the most common type of non-dilutive funding process used around the globe. In this process, you can contact any bank in your region and ask them for a loan according to your business requirements. You might have to fulfill the bank requirements for becoming eligible for any of their given schemes.
It is the simplest form of this type of fund because you only have to submit a check or documents of any of your property as the surety. You also have to get some guarantors for this process but you can do this type of activity by investing a little time.
Grants
When you are just starting a business or looking to support a small setup, you might be looking for repaid money for a long time. This is where you can pick the grants process for the non-dilutive fundraising process.
You will find multiple types of grants from various organizations just according to your business requirements. It is pretty simple to get money from this plan but you have to give a report to that organization on the progress of your project.
In simple words, you will get a loan but need to keep a record of your progress throughout the process unless you reached the destination.
Royalty Financing
Another famous type of non-dilutive financing is royalty financing. In this process, you have to make a contract with the investor or the group of investors to get a loan of some specific amount. In return, you have to pay them a proportion of the profit that your business will get for the particular time duration.
After that, you won’t need to pay the profit from your business and your equity will be saved. If you want to get a loan from someone for a short time, you can pick this process because of its simplicity and reward.
Final Verdict
Whether you are looking to grow your small business or are looking to start the new one, you should try your best to go for non-dilutive funding. This is because you still retain complete ownership and control of the business. This makes the process much more stress-free for you to run a company or business without constant checks from partners.
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