Different Sources of Funding for Your Business
Cash is the lifeblood of any business and to survive, your business will need cash at all times. However, sometimes getting funding for your business becomes challenging; especially during the early stages of growth for your business. As you grow, you need more raw materials among other inputs in order to meet the rising demand from customers. You all need to hire more employees or automate your production processes in order to increase your production and meet your sales volume targets. All these business operations will need more funding and you might not always have the money in your bank account.
So where do you get funding from for your business as it grows?
At the very early stage of your business not many people know your product and neither do they know the very existence of your business idea. In that case, you are not likely to have many external sources of funding and hence you will result to footing all the bills on your own. At that stage you will most likely be testing the viability of your business idea and doing market research; hence you will be able to cover all your initial costs on your own from your pocket or personal bank account.
Family & Friends
If your personal finances are not enough during the start-up stage of your business, the next easiest way of getting funding for your business is by borrowing from friends and close family members. Some of them may offer you support in kind such as providing you with a free working space instead of giving cash. Others may lend to you some money with or without an interest charge for you to use in running the operations of your start-up.
Both governments and donors run grant programmes for entrepreneurs in specific fields of their choice. Finding the right grant programme for your start-up can help you access the grant money which in most cases is not payable back to the lender and it is not charged any interest. The donors or government may however have their specific key performance indicators that they want you to achieve and report back to them. Understanding the requirement for each grant programme before applying for it is very essential.
These are individual investors or a group of investors who invest through patient capital in the very young businesses mostly at the idea or start-up stage of growth. The investors will buy equity into your company and in return they will give you the money you want to fund various activities within your business. Most of the angel investors also get a sit in the board of directors of your start-up in order to provide additional managerial support and aid in the strategic planning for your business growth. Some angel investors are very aggressive and are always out to acquire a bigger percentage of your company at a very small amount. Such investors are often referred to as sharks.
When your business gets into the high growth stage with prospects of reaching a wider market within the foreseeable future, venture capitalists will start getting interested in buying a stake into it. These are investment firms that provide funding for businesses in the growth stage in exchange for equity, debt or quasi equity in your firm. Like the angel investors, they also offer managerial support to the board of directors of your business. Mostly the venture capitalists will be having a strong understanding of a particular industry and have a wide network within the whole value chain in the industry that they connect your business to for accelerated growth.
Commercial banks are in the business of taking in deposits from their depositors and lending the money to borrowers. As a business the banks will always require collateral from you before they lend money to you; besides doing other cue diligence and credit scoring to assess your credit worthiness. In addition you can acquire business credit cards that give you an easy access to a revolving line of credit which you can use to make purchases or withdraw cash when you need to do either of them.
Your suppliers can also give you a line of credit whereby you pay them only after making sales from their input supplies. This can be very effective in helping you to manage your working capital in the short-run as you source for more funding from other sources.
Finally, you can get your customers to pre-order your products and pay for them in advance. This helps you to get the cash you need to pay for your production inputs without necessarily using your own money.