Different Ways to Finance Your Business
The need for business finance is universal. Whether the business is starting up or is already established, funds are needed at all stages of the business for uninterrupted business activities. How can you arrange for such funds?
There are different ways in which the business can be financed. You, therefore, have a lot of choice in choosing the preferred mode of financing the business. Let’s see what your choices are:
- Self-funding
The first and the most obvious source of financing your business is your own funds.
If you have funds at your disposal and your business requirement is small, you can invest your savings in your business.
There would be no interest to pay and you can invest the money at the earliest.
- Peer-to-peer lending
If you don’t have sufficient funds at your disposal, the next avenue which you can explore is peer-to-peer lending.
Peer-to-peer lending is when you borrow funds from your family and friends.
Since your family and friends know you,funds are available without formal protocols.
Moreover, if your immediate family is funding you, there might be no interest involved.
Even in case of friends, you might have to pay lower interest rates compared to other lending avenues.
- Crowdfunding
Crowdfunding is a relatively new way of arranging funds for the business which is gaining prominence in recent times.
Under this method,you can source money from different individuals on a common platform.
Usually, a crowdfunding platform is created where investors and borrowers participate.
Borrowers mention their requirements along with the reason why the funds are needed.
The USP of the business is highlighted for prospective lenders to contribute funds for the business.
- Angel investors or venture capitalists
Angel investors are individuals or companies who invest in businesses with a potential.
They buy a stake in the business for the investment they make. Besides providing funds, they also provide guidance and expert help.
Venture capitalists, on the other hand, fund new start-ups and operate in specific industries.
They look to recover their investments within three to five years.
So, based on your business requirements, you can choose angel investors or venture capitalists to finance your business.
- Invoice discounting
Invoice discounting is more of a type of loan based on the bills receivable of your business.
Since your debtors settle their bills after two or three months, you can present the invoices to a lender who is willing to loan you money against their value.
You can avail funds for up to 80% to 90% of the value of your invoice.
Later, when your debtors pay their dues, you can pay back the lender.
- Equity funding
Equity funding is another popular method of raising finance for the business.
Under this method, the ownership of the business is offered through the sale of equity shares.
Individuals buying the share contribute to the equity capital of the business and become a part owner.
The percentage of shares bought determines the stake in the business. Investors also expect attractive returns for their investment.
They are, therefore, allowed a part of company profits in the form of dividends on the number of shares held.
- Loans
Loans are, perhaps, the most conventional and popular way to raise funds for the business.
Banks and financial institutions allow loans for business use. There are personal loans as well as business loans which can be availed for financing the business.
Even in case of business loans, there are different options. You can choose collateral free term loans, working capital finance, equipment finance, loan against property, etc. and get access to funds.
There are some eligibility criteria which need to be fulfilled and documents which need to be submitted and the loan is offered easily.
There are interest rates associated with the loan though.
You have to repay the loan along with the applicable interest rate within a specified tenure.
So, the ways to arrange for business finance are many.
Which way would be most suitable for your business depends on your business’ requirements.
So, if your business needs funds, the above-mentioned avenues are available for you.
Pick the avenue which best suits the needs of your business and pumps the capital your venture needs.
Category: Business
