The financial requirements your business at different stages may call for different funding options, with a different set of rules and yet similar in many ways. You need to make the ideal choice that suits your business’ financial needs.
Funding your business is a lot like watering a plant – you need to keep pouring in the resources to ensure it thrives and prospers. But even before that, you need to plan how you want to finance your business and what options you have at hand.
Raising substantial capital for your business can be a challenge and a barrier to the eventual launch and operations of your business. To overcome that, you need to have clarity on the kind of funding opportunities you can explore.
On that note, presented below some of the options for you to ponder over.
- Bank credit
Banks are often the major source of finance to businesses, with overdraft and term loan being the most popular bank credit options. The issue with this source of finance is that banks typically need collateral and the interest rate is on the higher side as well.
Every business owner, at some point, will opt for a bank loan. As per the experts from finance assignment help services, it’s advisable to buy company assets with bank loans rather than using it as the operational cost.
- Personal savings
This is the most easily accessible source of fund to put into your business. It may involve inheritance or personal savings accumulated from your previous business or a day job.
The volume of money you use relies on your income and your ability to save and the amount of taxation. This form of finance constitutes no liability to your organisation and usually is interest-free.
- Friends and family
One of the most pertinent ways to fund your business is by hitting up the friends or loved ones who can lend you money. And the best part of this form of finance is that paying your loved ones back involves low or no-interest payments.
But it’s advised that you use the funds they provide wisely. Always approach them only after you have a business plan in place and inform them of the potential risks involved.
- Partnership
To define simply, a partnership is a legal form of business in which two or more individuals share the management, liabilities and profits of a specific business venture. To expand the capital base of a new venture, you may plan to take on a partner or partners.
The partnership is primarily controlled by the “Deed of Partnership” which elaborates how profit/loss should be shared, and the extent of each partner’s involvement in the organisation.
- Trade/ vendor credit
You can negotiate a deal with your suppliers to delay the payment for raw materials or goods supplied to a future date. This allows you to use the income accumulated from the sales of the goods manufactured to pay your debt rather than borrowing to do so.
The availability and success of trade credits are based on the track record of your organisation. It also depends on the willingness of the suppliers to part with his goods for several weeks before you pay up finally. But in most cases, the suppliers who agree to supply goods on credit may not do so at the lowest price.
- Grants
Grants are non-repayable funds offered by a government or a private non-profit organisation (grant makers) to an eligible recipient (grantee). The competition for grants is usually quite stiff, but you can receive grants if your business has a positive social impact.
Grants may come in forms other than money, like a fixed asset.
- Angel investors
Angel investors, also recognised as equity investors, are individuals with substantial funds who offer capitals for start-ups. These individuals are generally inclined to finance businesses with promising growth potential. You’re required to share ownership and control of your company with these investors.
The extent to which they will ask for the ownership and control of the company rests on the amount of funds they allocate for your company. In this case, you must be careful not to be pushed aside in your own business. But often the smart investors may still want you to run the business even after they have a majority share of your company.
- Crowdfunding
Thanks to websites like Indiegogo and Kickstarter, you can raise money for your business at a nominal cost, while having a little fun at the same time. Other than raising funds, crowdfunding allows you the chance to validate your business idea.
You should read the regulations before opting for crowdfunding site, so you’re aware of how big a cut the site takes and what happens if you don’t reach your goal.
- Venture Capitalist
Venture capitalists can be a group of wealthy individuals, and government-assisted sources or renowned financial institutions who have a dedicated pool of capital. These individuals or entities make the capital available for the expansion of businesses with great potential for profits. They rarely invest in new companies unless there is a major potential for profits which can be measured and identified.
Sourcing funds from venture capitalists is an excellent idea because you get money that doesn’t have to be repaid. Banks may be more willing to offer credit to your business since the money invested by the venture capitalists is equity.
- Moneylenders
These are individuals or group of individuals (different from banks and financial institutions) who provide small personal loans at high-interest rates. Before you borrow money from them, you need to understand the terms and conditions of the contract thoroughly.
Some money lenders come up with conditions that may seem fishy. Some contracts are also created in such a way that you end up losing your business if you fail to follow the terms and conditions properly.
Parting thoughts
The financial requirements your business at different stages may call for different funding options, with a different set of rules and yet similar in many ways. You need to make the ideal choice that suits your business’ financial needs.
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