Obtaining financing for business is one of the significant challenges faced by most people who are aspiring entrepreneurs. Even big and established companies face this issue now and again. While big entities usually prefer to borrow from scheduled banks or financial institutions, small business owners and aspiring start-ups may not have the same leverage with banks that their bigger counterparts enjoy.
The points below will discuss a few ways through which you can arrange financing for your business so that it may be established, and remains profitable.
Ways to Finance Your Business
1. Friends, family, and acquaintances
Perhaps you have a great business idea that requires minimal capital injection in the initial stages. Or maybe you already have a running business that needs some cash urgently to procure badly-needed machinery.
In both the above situations, you should look around. There is a possibility that one of your close friends or a relative might be interested in investing in your business.
You should, however, keep in mind that they have as much right on the proportionate profit that your company can make due to the capital injection.
Being your friend/relative/acquaintance, it does not impair their rights as shareholders/investors/ creditors in any way. Be fair with them because they came to your help when you needed it.
2. Government-Sponsored Programs
All over the world, governments are interested in promoting business activity to strengthen the economy and reduce unemployment. For this purpose, they would offer to finance at soft conditions so that more and more people can reap its benefits.
In the US, anyone with an innovative business idea and a viable business plan can apply for financing. If you are a prospective businessman and fulfill the conditions laid down by the government for using their loan, you can have it without any difficulty.
3. Loans from Commercial banks / Financial Institutions
For established companies, commercial banks and financial institutions are the best options for securing finance.
Bank loans and financing credit lines allow these companies to fill their cash flow gaps or the capital to invest in new business opportunities. Banks and financial institutions gauge the economic history of the company through its published accounts. They would also seek collateral against their loan to secure it.
Most businesses go for short term loans because it is easier for them to fulfill their needs at the time. A short term loan calculator comes in very handy when applying for such loans and funding.
It is a relatively new term that is not known to many people. Crowdfunding, however, is a legally acceptable mode of financing and is covered by the Jobs Act. The law allows investors to finance any business that they deem suitable. This type of funding can be beneficial during the initial stages of the company. Most business owners do not qualify for traditional loans due to one reason or another and opt for this type of lending.
5. Venture capital
This kind of financing is feasible for fast-growing businesses. Since the amount involved in venture capital investments is usually huge, they are very diligent before approving such loans. This kind of financing is best suited when there is an opportunity to expand the current market geographically or by introducing new products. They are also able to deploy vast amounts of funds on short notices.
Bootstrapping is a term that means building a company with the help of the owner’s savings. It could also include the revenue generated through the initial sales of the company. Every person has some financial resources available with them. They may be in the form of credit cards, bonds, equities, and even cash.
People would keep these savings stashed away for rainy days. These funds can be fruitful for establishing and building a business. Bootstrapping means that the owner hasn’t taken a single penny from any outside resource having coughed up the entire amount through his / her own.
7. Investor Pooling
It is a novel phenomenon that is also sometimes referred to as ‘angel investors.’ It is a group of people who would pool their collective resources, and provide you with the necessary amount to establish/develop your business.
In exchange, pool investors would usually require a slice of your equity so that they can share the profits of the company on a proportionate basis.
The Final Word
A sound financial background will always prove helpful when you are trying to secure financing for your business venture.
Funding can be obtained at any time during your business undertaking. But any funding – whether from banks – or nontraditional sources should fulfill your monetary requirements rather than becoming a burden on your company.