THERE ARE MANY DIFFERENT ways to acquire financing, so preparation and research will pay off well for you. Before searching for financing, it is a good idea to see what grants and subsidies you might qualify for. They could keep you from incurring debt or losing ownership. However, if you don’t find such funding available, a variety other sources of financing can help you get your new business off the ground.

When determining what type of financing to procure for your business, there are many avenues to consider. Depending on the type of business you have, your future plans, and the product(s) and service(s) you offer, the choice is important. There are two main types of financing: debt or equity. Debt financing is the process by which a firm borrows capital from banks and investors, promising to repay the borrowed funds within a certain amount of time or incur some type of liability, usually in the form of interest. The other type is equity financing, when an organization relinquishes ownership interest to different sources in exchange for capital. Most well-capitalized businesses use a balance of both. This helps mitigate risk and keep the cost of capital to a minimum.

Debt financing is usually done by businesses that have either established positive cash flow (money remaining after collecting rent and paying operating expenses and mortgage payments) or have the necessary collateral (equipment, cash or an individual’s promissory note) to secure the funds from a lender. When businesses choose this method, they are obliged to pay a carrying cost on the funds. This is common among two types of businesses. One type deals in high-volume inventory purchases that are later liquidated through sales channels, thus keeping the term of the loan to a minimum. The other type needs to expand by purchasing space or equipment with a liquidation value similar to the debt outstanding (real estate, long-term-use equipment, and vehicles).

Another approach is equity financing. It can be a great tool when expanding your firm beyond the size and scope of what you could fund with conventional debt financing. In equity financing, you effectively sell an interest in your company in exchange for funding provided by a partner or investor. That way, you can raise needed capital, while only being exposed to a few key liabilities like rent or mortgage, equipment expenses, and employee salaries.

In order to avoid takeovers or buyouts by these parties, you need to consider who holds the controlling interest in an equity deal. Whoever owns more than 50 percent, the majority percentage of the company’s shares, gets to call the shots. Also, depending on the way in which the interest is conveyed, individuals can recoup their investment through multiple channels. This is when contracts detailing cash capital disbursements (debt repayment and/or interest payment) are important.

Here’s an example of a vital cash capital disbursement decision. Imagine you accepted a large start-up loan from an investor to get your business off the ground. What does your cash capital disbursement contract say about your repayment terms? Specifically, when you have to pay it back? Do you have to start repaying the loan immediately, or after three to five years? It makes a pretty big difference.

If you have to start paying back the loan immediately, the principal (original amount) plus interest will put a pretty big dent in your allocated operating budget, from Day One. Is the loan even worth it, at this point? You can see why your cash capital disbursement terms are extremely important. Make sure the financial terms to which you agree are feasible for you.

Lastly, remember that there is a strong correlation between risk and reward in funding. If you have to relinquish a good portion of your ownership interest to other investors in order to get the money you need, you may only be entitled to a small portion of the profits, in the event that the business performs extremely well.

There are many different types of private investors and investment groups. The most common is the accredited investor. These individuals are familiar with the investment world and have probably participated in such ventures previously. They also have certain qualifications to make them attractive financiers. Another type is an angel investor, an individual who has the funds to almost entirely fund the start-up, expansion or growth of a business. Both accredited investors and angel investors are private parties who are not usually affiliated with an investment group.

Investment groups, such as venture capitalists (VC’s), are another option. Venture capital groups are great for companies that are interested in retaining brain-trust equity and/or a portion of the control, but not all. These groups tend to know exactly what they are looking for in exchange for their involvement. The right to controlling interest and substantial portions of revenue is not uncommon. However, by using such groups, a business’s current owners can nearly eliminate their personal financial risk. Because the VCs have a sizeable vested interest, expect the participation of seasoned business consultants who will take a hands-on approach and work with your firm to achieve success.

Some businesses have the ability to approach the public through an initial public offering (IPO). This is the process by which a company works with investment bankers to build a following in a specific trading platform (e.g., a stock exchange), then offers shares representing interest in the company on its behalf, in exchange for a portion of the proceeds. Usually a company has to have a proven track record to launch an IPO, so don’t waste time dreaming about IPOs in your early start-up days unless others with experience confirm it’s worth considering.

There can be great benefits as well as detriments associated with making an initial public offering. The most common advantage is that, on average, a firm can collect ten times its value in one offering. In special circumstances, when either the product or service is groundbreaking or there is a large emotional following in the market, an organization can raise exponentially more. This happened frequently during the dot-com era, in the late Nineties, when technology companies were making IPOs and the stock prices were driven up to staggering multiples above book value, simply because of investors’ speculation on the potential for future success.

Local, regional, or even national governments often provide funding for entrepreneurs, as the Small Business Administration (SBA) does in the US. Especially for new businesses, the SBA offers competitive loans, grants and subsidies. However, the majority of these funds are only released to businesses or individuals with specific profiles, such as minorities, persons with disabilities, and individuals coming from a disadvantaged socioeconomic background. If you qualify for this avenue for funding, you will encounter numerous waiting periods that can only be expedited by spending more money. Most of the forms necessary for different filings can be filled out digitally and submitted online, or they can be downloaded, printed and then faxed to the necessary recipient.

If you are based in a location where special business development incentives are available, be sure to check them out. Has your area suffered from had a natural disaster, so that funds are now available to recover and start new businesses? Do your local or higher levels of government, or your industry sector, award grants or subsidies to encourage companies to open new markets, employ certain kinds of workers, or develop products or services in line with governmental planning goals?

With all these sources of money, be careful to not get ahead of yourself. If your regional government offers to pay for companies to attend trade fairs in new markets, for example, don’t go first and apply for reimbursement later. You will often find these aids need to be applied for and approved before the action they encourage gets started. Still, they are a great boon for start-ups and expanding businesses.