No matter the kind of business venture you are getting into, you need finance. Finance is the livewire that brings our business ideas to life, especially for startups. Whether you’re starting a new business or expanding an existing one, you need money to get things started.
Starting and sustaining a business can be challenging, and raising capital is one of the biggest obstacles. The first step in seeking funding is determining how much money you need to begin or expand your business.
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Let’s Examine The Various Ways You Can Fund Your Business
1). Personal Savings
Most businesses prefer this method of financing. The savings derived from previous endeavours or inheritance may also be included. Taxation, savings capacity, and consumption level all affect the amount of money available for use. Funds from this source are usually interest-free and do not impose any liability on your company.
2. Friends and family
Next to personal savings, this is the most popular source of funding. A wealthy friend or family member may gift you money. You can ask your friends and family to assist you without worrying about getting returns too quickly.
3. Bank Loan
Most entrepreneurs obtain most company’s of their funds through bank loans, with overdrafts being the most common form of credit available to new and existing businesses. This type of source of funds is generally troubled by collateral requirements and high interest rates. Most entrepreneurs will seek bank loans at some point in their business careers. In general, it’s better to get bank loans to purchase assets for your company rather than use them as operational costs.
A partnership refers to employees sharing duties, profits, and liability of a business venture, in all its forms. You may take on an investor or partner to boost the capital base of a new venture.
Partner commitments and profit and loss sharing are defined in the partnership’s deed of partnership. Partners can form general or limited partnerships in which their assets are protected from the firm’s creditors. Public partnerships have partners personally responsible for the business’s debts.
5. Loan companies
An individual or group of individuals who offers small loans at a high-interest rate (different from banks and financial institutions). Before you borrow money from them, make sure you fully understand the terms and conditions of the contract. There are money lenders who offer sweet but risky conditions. A few contracts are structured so that if you don’t follow the terms and conditions, you may lose your company.
A consistent reputation of excellence in your field of business is crucial for the possibility of obtaining this funding source. Advance payments for goods can help you finance your business or partially finance it. In addition to giving credit to your customers, you can also encourage them to pay in cash. Giving early-payment customers cash discounts is another way to raise funds.
7. Trade credit/ vendor credit
You could negotiate payment for raw materials or goods your supplier gives later since the cost can be deferred. This allows you to pay up your debt rather than take out a loan since the income generated from sales of the products you manufacture will go toward doing so.
Whether you can secure trade credits depends on your company’s credit history and whether your supplier is willing to part with his goods for a few weeks before you finally pay him. Suppliers who agree to supply goods on credit might not necessarily be able to do so at the lowest price.
A grant is an unrepayable gift made by a non-profit organization or foundation (grantmaker) to a deserving recipient (grantee). While grant competition is heavy, grants are more likely to be awarded if your enterprise will have a positive social impact, benefiting you and the wider community.
Fixed assets may be used as grants instead of money. A business or factory may need land for its location or equipment, and those are fixed assets.
You should first, as an entrepreneur, determine the amount of funding your company needs before sourcing any funds. This is to avoid borrowing too much money or less than you need as both overborrowing and under borrowing are unhealthy for your business. Which of these methods have you used for your business?