Business ideas, money matters, companies… they all sound good at first, but without actually being in that position, one can never know the effort it takes to start and keep a business running. I had to learn the hard way. When starting up, it’s hard it is to determine the best way for funding my business. It is essential to note that every business out there is different, thus finding the funding strategy that suits yours best can prove to be a serious and heavy task. I looked into several ways I could fund my business. Check them out and see if they are suited for your business.
1 Investment
Most owners fund their businesses through investment. One can sell equity in their company in exchange for capital. This is one of the most cost-effective ways to raise capital for your business because you don’t have to pay any interest on the money that you receive from your investor. Selling equity comes with a couple of advantages such as avoiding costs like paying interest of some sort, the downstream benefits since the investors don’t want to see their investments fail, and when you receive investment, you don’t have to meet the credit requirements that often prevent business owners from attaining capital. Most startups use this because most have very little assets, and therefore struggle to receive any form of capital from traditional commercial banks.
The demerit of selling equity is that you stand to benefit less from the business further down the road. You will also end up having less control over your company in that your investors will have control. And they might even have more control than you. If you’re someone who wants to own the entirety of your business for the coming years, receiving investment is not the optimal type of funding for your business.
2 Finance
Financing is the act of providing funds for business activities, making purchases or investing. Financial institutions, banks mostly, provide the loans for financing the business for a period. Financing your operations is one of the most viable ways to get your business up and running. Many business owners try and avoid financing things because of the issue concerning interest rates, but what they don’t realize is that financing certain parts of your business can have a great impact on the future of their business. It has lower interest rates and costs less than other forms of finance. There is typically a fixed interest rate which you are required to pay back along with it. Many traditional loans will have to be secured against assets in your business.
Another form of finance is the business credit card. It is normally used to fund ongoing operations, not start businesses. Using investment as business funding makes it possible for a business owner to retain equity, control, and flexibility. Business credit cards are like personal credit cards, except they are tied to your business. You are usually given a set limit, and you only pay back what you use, and only pay interest on what you use. The only disadvantage with business credit cards is that they charge very high fees for cash advances.
The downside to using finance as a whole is that it’s costly since you’ll have to pay some amount of money on top of what you borrow plus you’ll always sign off some assets as collateral to secure the loan. It’s the basic rules or borrowing. Another thing is that it can be quite hard to get financing if you have a little credit history or a bad credit report.
3 Factoring
Suppose selling equity and applying for loans are not options for you, factoring may be the way to go. It is a form of funding that is neither debt nor investment. It is simply the act of unfulfilled sell invoices to a factoring company who are then responsible for collecting the invoice when it is due. This way, you get the capital you need to keep operations going, without having to get approved for a loan or lose a portion of your company. Always keep in mind that you have to notify your clients before selling their invoices to a factoring agency because they will be notified either way and it will make your business look bad.
4 Grants
In my opinion, this should be the first option because it is free money. This small business funding program is specifically designed to help business owners with little capital. Small business grants are a form of government funding for small business in that they provide small amounts of cash for qualifying business owners. Always go for grants before looking for any other form of funding your business.