- Emma Anderson
- October 30, 2021
Starting a business can be a complex process as it requires a multifaceted organization as well as planning. Most entrepreneurs are with the idea that needs to be tempered immediately. But the critical aspect of this process is to identify the proper method to finance it. We all know that there will be no business if there is no finance.
Multiple sources offer the power to choose to the fund user
We have the sky as the limit to explore when it comes to business finance options. Creating a business and executing the plan needs finance. Considering the global credit crunch, it is evident that the funding options available to companies are investigated.
An entrepreneur can get numerous options to choose from when it comes to financing. Here is the guide that will give an in-depth understanding of various modes of finances.
Under the personal capital finance option, an entrepreneur invests his own money. Here one can also consider obtaining the finance from friends and family as a group. The second option that one can consider is the retained profits. Here one prefers to reinvest the profit into the business itself. But here, the company needs to be up and running before reinvesting the profit.
Apart from this, one can also prefer to get the trade credit, business overdrafts, or hire purchases to fund the business. Debt factoring is an emerging option that involves selling off the debtor books of business to a bank or financial institution.
Another source of finance that businesses can consider is public finance from government-funded programs. Various County enterprise boards provide multiple forms of business finance, including development grants and business priming grants. These enterprises offer financial assistance to the businesses in the form of grants. One can find numerous support programs available from public bodies throughout Ireland.
Private online lending
Emerged as a promising part of flexible FinTech, private lending is known for its capacity to provide versatile financial solutions to business owners. From start-ups to small businesses or established industry giants, funds are available for all.
Private lending is a good option because here, you have no constraint of poor credit score. You can take our guaranteed loans for bad credit situations without any collateral and guarantor. Yes, the loan amount is small.
Equity Finance is a method of finance that involves businesses receiving the money in the exchange of ownership. Raising equity capital is considered to be a different process than raising debt from a bank. Generally, banks ask for security like charges over assets of finance. Here they charge specific interest on a loan and ask for the repayment.
Equity capital is generally invested in exchange for a share in the business. Here the equity investor returns are dependent upon the profitability and growth of a business. One of the significant benefits of availing of equity finance is the assumption of risk by investors. Equity investment does not come with any kind of defined repayment terms and is unsecured.
Generally, banks provide a large lump sum to cover the larger purchases or fund the business. But here, a business needs to have a strong credit rating. It requires you to pay the principal amount along with particular interest over some time.
The bank loan is considered one of the rigid finding options out of reach for most businesses. However, multiple options are available, from start-up loans to 100% guaranteed car finance for commercial reasons. But, here, the application process can take several months and come with strict lending criteria.
Hence one needs to submit a detailed business plan, strong financial record, and collateral for application.
Business Credit Cards
Business Credit cards can help businesses to support the working capital and cover day-to-day business expenses. It is more accessible than a business loan but comes with higher interest rates and fees.
Hence, it can be expensive and quickly mount up if you do not clear the balance each month. Business credit cards are generally used to cover small purchases and hence do not cover other expenses like fund expansion or paying suppliers.
Asset finance is known as the option that helps businesses to fund the purchase of high-value assets. It can include purchasing used machinery, vehicles, or equipment. This type of finance is also helpful to help businesses to release the tied-up capital under high-value assets owned by the businesses. Asset Finance includes finance leasing, hire purchasing, and operating leasing.
Asset finance asks for purchase acts as collateral funding, unlike a traditional loan. Hence one does not need to provide proper security for the same. Here businesses can make regular repayments over time to pay back the principal and interest.
Trade Finance is the funding option that helps businesses cover the cash flow gaps and mitigate the risks involved while trading internationally. This funding option can also be used for domestic trade purposes. Here the supplier can be assured that they will get paid once the goods get shipped. In this way, the buyer also gets the assurance of receiving the goods.
With trade finance, the option buyer can cover the cash flow gaps waiting for shipments and use the funding to negotiate the early payment. Here suppliers can release the money and speed up the cash cycles.
Merchant Cash Advance
Merchant Cash Advance is an option that processes significant volumes of customer card payments. Here the amount that one borrows is determined by the value of card payment you process for the business.
With this funding option, a percentage of the payment value is used automatically to repay the principal amount along with interest when processing the card payment. The repayment amount depends upon the value of card payments that one process. Merchant Cash Advance can help businesses with season sales cycles.
Crowdfunding is the popular funding option that most businesses avail of nowadays. It has become the preferred choice for most innovative companies and start-ups. Here one does not need to have a strong credit rating or collateral to get the funding. But a business needs to create a strong promotional campaign to attract investors. This is considered as the long-term funding solution, and hence one needs to have a compelling pitch.
Getting finance through crowdfunding is a long process, and it does not come with any guarantee of a certain amount.
One needs to be clear with certain expectations while determining the suitable types of business finance. Getting advice from an expert or doing research can help you to make the right decision.