Types of financing: 6 ways of financing a business 

 

Most small businesses lack the necessary funds to upscale, expand or even get the ball rolling on their ventures. The lack of funding is a recurring problem with startups and small businesses. For owners considering bank loans, there is also the problem of security assets, collateral, or the interest rate being too high. While it is easy to get excited about all the “free money” out there, make sure that the funding option you choose is what’s best for your business. Here is an overview of six typical funding sources for start-ups and small businesses. 

 

 

  • Venture Capital

 

First of all, it should be remembered that venture capital is not for every business owner. Indeed, venture capitalists strive to invest in high-tech companies and high-potential companies in sectors such as information technology, biotechnology, and communications.

These investors also take a risk in the companies they finance to help them carry out a promising project but involve greater risk. This means that the business owner must shift part of his business to a third party. Venture capitalists also want a reasonable return on investment, which usually comes together when the company starts selling stakes to the public. Look for investors who have related knowledge and whose proficiency will be valuable to your company.

 

 

  • Angel Investors

 

Angel investors are typically rich individuals or retired corporate administrators who invest directly in SMEs owned by others. They are often leaders in their field. They bring their experience and e

network of connections to the company, but also their technical proficiency or their management knowledge. Angel investors incline to sponsor companies in the initial stages of growth, and the payment invested ranges from $25,000 to $100,000. Venture capitalists prefer to invest huge sums, of about a million dollars.

In return for the chance they take in investing their wealth, angel investors withhold the right to supervise the administration of the enterprise. This generally means they are on the board and request proofs of transparency.

 

 

  • Crowdfunding

 

crowdfunding consists of raising funds on the internet via a crowdfunding platform (a commission of between 5 and 12% of the amount raised is deducted in the event of success). For a project leader, it makes it possible to collect more or less large sums while limiting risk-taking. Depending on the number of contributors, you can already have an idea of ​​the future of your company or your new product. For the contributor, his investment is transparent, in other words, he knows exactly what the money is used for. Crowdfunding takes three forms: donation, loan, and investment.

 

 

  • Cash flow lending

 

Cash flow loans are short-term loans that enable the business owner to make good use of the available business opportunities or manage an unstable cash flow. Cash-flowing lending has every enticing feature that includes less paperwork, favorable repayment plans, and faster applications. Remember that lenders are different and would have different offers. Some lenders do not offer fixed principal prices which means there can be an increase in interests. Some lenders may choose to include other charges and hidden fees. 

 

 

  • Invoice finance

 

Invoice financing is a great way to help small businesses ensure constant cash flow while waiting for customers to pay for goods or services. Invoice finance comes in two types: invoice factoring and invoice finance. Invoice factoring is a situation where business owners sell their invoices to a third-party company at a reduced cost in exchange for instant cash while invoice finance is a situation where businesses use their invoices to secure loans.

This financing method could be very useful if you run a business where you have to wait for payment from customers after completing a task or making a purchase. Invoice finance will only be a feasible option if your business issues invoices otherwise this won’t be good for you. 

 

 

  • Small business loans

 

Small business loans are business loans awarded to small businesses with flexible repayment plans. These loans work with the cash flow of the business. If your business needs cash urgently, these loans could be your saving grace since decision-making is fast and your business could be funded within 24 hours. Another advantage of small loans is that lenders do not require collateral or security upfront. You can access funds up to $11k and have the option to reschedule repayments dates, consequently extending the duration of the loan. 

 

These funding methods are a sure-fire way to get your small business on its feet. They are available to everyone. Some of the options are more favorable to people looking for funding options with less risk. Whatever the case, make sure to choose a funding method that is right for you and your business. Find more information about business financing sources if these do not suffice.