To start growing a business, you will need to start spending. That is easily said, but if you have no money to spend then it’s impossible.
This means that there will come a time when you need to seek funding. This money could be required for various reasons; from cash to start up, to taking advantage of potential opportunities that are on the horizon.
Fortunately, there are many avenues to go down, but this presents its own challenges. How do you know what option is the correct one to make?
In this blog, we will help you learn about the options available.
Bank Loans
The bank is probably the first place that most people turn to when seeking funds. For businesses it’s no different. Banks offer a range of secure financing options and they provide clear terms & conditions.
However, before a bank will lend to you, you must provide a detailed breakdown of your business plan. In this, you must show your plan to success. This includes what you intend to do with the money and how you intend to do it. Basically, what the bank are looking to do is ensure you are able to pay back the loan.
The main advantage of a bank loan is that you retain ownership of your business. The downside however, is that the bank my liquidate your business if you can’t keep up with repayments.
Our biggest tip for bank loans is to shop around for the best deal, as different banks will offer different rates. On top of this, each bank will also have their own repayment terms.
Private Equity
Another popular type of funding for young businesses is private equity.
Private equity is where you sell a stake of your business to a private investor.
The main difference between equity and loans is in the risk. Where loans must be repaid in full whether or not your business succeeds, equity investors share in both your profits and you losses. In a private equity transaction, the investor will normally also take up a role within your business in order to aide with business decisions.
Just like with banks though, you will still need to convince potential investors that your business is investible.
Angel investing is another type of private equity that’s available. Angel investing is similar to private equity however they will take a percentage stake in your business. Think Dragon’s Den, that’s exactly what angel investing is.
Crowdfunding
Crowdfunding is when businesses, organisations or individuals fund a business without traditional means with small donations from many people. By receiving the necessary boost to cash flow, these ventures can get off the ground or launch new projects. Most of these campaigns happen via internet platforms, have set time frames for when money can be raised, and disclose specific monetary goals.
- Crowdfunding is when a “crowd” funds a project or business, rather than one or two major investors.
- There are four different types of crowdfunding: rewards, donation, debt and equity.
- To run a successful crowdfunding campaign, you need to capture the attention of a large number of backers and convince them that your project is worthy of their investment.
Family and Friends
Finally, you can seek financial support from those close to you.
This works best if you are lucky enough to have well off friends and family but it’s no uncommon for people to give any cash they have to support people’s dreams. It’s very common for entrepreneurs to ask for financial support from people close to them.
Not only that, friends and family are also more likely to be more lenient than commercial lenders. They want to see you succeed, so if you end up behind in some payments then they’re not going to take your business away from you or demand extortionate interest rates.
There are many options when it comes to finance and it’s highly recommended that you take your time in choosing and make sure you select the right one for you. That being said, just because you get a bank loan, that doesn’t mean you can’t look for angel investors or borrow some money from your family.
Contact the team at Cofficient today, and see how we can help your young company grow.
