A business needs cash to sustain at every stage of its operations. The process of raising any kind of funding is unique to every business, depending on the company and its requirements. When you go looking for funding, start out by researching and zeroing in on your possible options. Here are a few ways how a business goes about funding its start and growth.
A lot of entrepreneurs go the self-funding route in the beginning. You can fund your own startup through your savings, selling assets or taking on personal debt. Self-funding is not the most sustainable way for the growth of a business, however, it is the best to kickstart your project without experiencing delays propelled by funding.
As the business grows and generates enough cash flow, it can fund itself. In an event where a business generates adequate sales to fund its growth, it doesn’t need to look outside for fund raising. The bootstrapping mode of financing if sustainable go a long way to fuel the growth of a business as the model leverages on self-sustenance and financing.
Angels and VC
Angel investors and venture capitalists are high net-worth individuals who invest in private businesses. They focus on early-stage financing and typically make large investments. However, raising funds through this route ensures giving up on minor or significant control over your business depending on the amount of money one chooses to raise.
Crowdfunding allows entrepreneurs to raise small sums from a large number of people. This can be done through various online platforms. Investments in business can either equity, debt or rewards-based. When it comes to crowdfunding, marketing your business is the key, given the investors are often unfamiliar with the nature of the business they are investing in.
Leveraging the power of your networks can prove to be a boon for funding your business. Through your personal and professional networks, securing equity funding comes as a specialised step to crowdfunding. Network funding often goes beyond family and friends as the professional network of the founder and the company often helps in raising funds through backward and forward integrations.
The traditional form of financing, banks usually offer small business loans. They make these loans backed by a company’s accounts receivable or inventory.
Small Business Lenders
Many institutions and organisations cater to small businesses through loans. These loans are typically secured by assets but come with higher than usual rates.
Apart from standard loans, small businesses can also look to borrow specifically against their accounts receivables. The most common financing of this type is used for working capital requirements. While interest rates here may be high, it still makes for a good kind of funding source for small businesses.Another common practice is factoring wherein a business can sell its obligations to a factor. The factor then assumes the risk of payment.