The ways businesses finance their ventures make a big difference. In fact, one of the very essential factors in success of any business is how their financing operates. Therefore, it is imperative not only to know about different modes of financing but how the same can be implemented.
Fortunately, there are hundreds of ways in which a business can be financed. However, with the passage of time, some modes of financing have made their way into the industry. Thus, here are some of the top sources of business finance that companies must be aware of.
Internal finance is considered as the best mode of financing. Rather than heading towards external sources, it is recommendable to control the financing within the business itself. There are many studies which suggest that businesses worth billions of dollars have bootstrapped. This is essentially done by the revenue received by the business. The money which is received by the business is invested in the operations itself. This can be a smart option to go for since the business will not be relied on external sources and therefore, it gives them more leverage when it comes to decision making.
2. Personal investments
This is similar to bootstrapping in the sense that it limits the businesses’ need to rely on external sources. For example, if someone has sufficient savings, the same can be used to invest into the business rather than heading towards a bank or a commercial lender. Such forms of personal investments can be used in different aspects of business such as marketing, operations, sales, supply and research. However, it is unlikely for someone to have a huge amount of money as savings and therefore, this source is suitable for small-scale or mid-sized businesses.
3. Venture capitalist firms
With the passage of time, venture capitalist firms are gaining more popularity. New entrepreneurs approach such firms with their new business ideas and innovations. VCs are investing firms who inject equity into these businesses by purchasing shares. However, there is much competition when it comes to securing investments from VCs. The entire business model and plan is to be detailed which is being evaluated. Thereafter, the funding is given. One of the biggest advantages of getting investments from VCs is that you do not only get money from them but also their mentorship.
4. Government funding
Government funding is one of the most effective ways in which a business can finance their operations. Most of the governments are willing to provide funding and grants to boost the economy and create more business in the country. Although it is not an easy route, if the execution is done in the right manner, it can be lucrative. There are different kinds of government grants. Each grant has a separate application process. In any case, the business will be required to demonstrate to the government that the business has an innovative approach which can effectively be executed.
This is perhaps the most common way in which businesses are funded. Banks can be approached for loans. There are various business loans and programs which can be accessed without any difficulty. The business will only be required to show the cash flow and accordingly, the loan will be granted. Each bank has a different application process and the terms of loan may different as well. Thus, businesses should take into account the benefits and drawbacks of applying for each bank. It will enable us to make the right choice. For instance, businesses may consider ikanobank.dk for a better service.
6. Angel investments
A lot of people are not aware about this source of investment. Angel investments are gradually gaining more and more popularity. A major portion of costs can be funded by angel investors. These are essentially individuals or organizations that have sufficient amounts of savings which they are ready to invest in a business. Investment groups are being created in order to minimize the risks associated with investments. With the advancement in technology, it has become much easier to connect with these investors. However, the business will again be required to show a solid plan to secure the investment.
7. Commercial lenders
Just like banks, there are hundreds of commercial lending services out there that can be approached. These lenders are commercial services which have sufficient amounts of money to lend it to someone. However, the interest rates may be higher than banks. It is pertinent to note that commercial lenders do not inject equity into the business but provide a debt. This can either be in a form of a normal commercial loan or it can be a convertible debt. Depending on the nature of the business, these debts can be structured in different ways.
8. Credit card financing
This is not a preferred method of financing. However, it can be relied on if you are looking forward to small scale financing. Credit cards can be used as short term loans. Depending upon the terms and condition of the credit card, it can be utilized accordingly to acquire some funds from the bank.
This is one of the most interesting and useful sources of business finance in this day and age. As the name suggests, crowd funding is essentially a platform whereby the funding is received by the crowd at large. This form of investment can be looked forward to by businesses who want to get bigger amounts of investments. Nevertheless, in order to secure such funding, businesses need to develop a reputation in the market.
The bottom line
Above are some of the major ways in which businesses can finance themselves. However, it is not an exhaustive list. There are other several methods through which funds can be received. In any event, businesses should be wary of the funding they are receiving. It is always recommendable to consult with legal, tax and business consultants to get a holistic idea of which financing should be acquired.