No business ever started with more than enough funds. With this in mind, every business out there needs funding. Business Finance is used to obtain assets which will help your business make more money, to purchase capital items, to increase holdings of trading stock and supplies, fund research and development and expand distribution and develop new markets.
To find the right business finance provider for your business, you should know the types of finances available for you.
Debt Financing
Borrowing from banks or financial institutions, provided specific terms and conditions for repayment is called debt financing. Businesses who are into debt financing accept a direct obligation to repay the funds within a specific period of time. Here are the sources for debt financing:
Friends and relatives – advantage is that they are likely to give flexible terms of repayment than other lenders. They may be willing to invest more on your business and try to become involved in management. It is advisable that you create an agreement to avoid future misunderstandings.
Banks are the sources of most businesses finance. There are many types of banks but generally they exist to accept loans and deposits. They are very cautious when making loans so it may be hard your young businesses to have banks as their source.
Credit Unions are common providers of business finance. They intend to help members of a group, like members of a labor union. They give funds with more favourable terms than banks. However, the amount of money they can lend you is usually not as large.
Finance companies are another option. However, they charge higher interest rates than banks and credit unions; but they do approve more business finance request.
Equity Finance
Investors provide funds in exchange of shares in your business. They provide total risk capital and have no security to call if your business does not earn as expected. This type of business finance may be sourced through the ff:
Joint Venture – two or more companies agree to share capital and resources, involving financial support and sharing of risks. This arrangement brings efficient commercialization, acceleration of revenue growth, and expansion of domestic markets.
Venture Capital Funds – business finance providers who are often generous usually think that they will get big returns in a short span of time. They offer share capital. They tend to invest in risky ventures who find it difficult to get a loan from a bank. Advantages would be substantial amount of capital and no repayments to worry about. Disadvantages would be a sacrifice of large part of your company and will not be viable for small and medium businesses. They usually invest over ₤1M .
Business Angels – these are wealthy individuals who invest in groups and expect high return for their investment. They are willing to be a business finance provider for small business, giving help and sharing their first-hand experiences. You may want to contact the British Business Angels Association for business angel networks.
