Whether you want to buy plant equipment or increase your office space, you need money for it. The right type of business financing helps you survive the competition and up your business growth.
If a business is in the growth stage, investors become highly confident about its impending success. As the company generates incomes and acquires new customers, hopes and adrenaline are both sky high.
People are unaware that during its initial phase, a business is the most vulnerable. One bad move, one streak of bad luck and everything falls to the ground. According to a study, 50% of small businesses fail within the first five years. That’s because there’s a lot of uncertainty ahead.
Though each business has a different path for expansion, at each basic step financing is required. Whether you want to launch a new product or grow your market share, you need to focus on the finance options to raise capital for your business.
Capital and Business
Capital is as important for business as blood is for the human body. It is the basic ingredient for business success. If a business is short of capital, it will not be able to succeed neither in the short term or the long term.
With rising awareness regarding capital requirements, businesses are increasingly carrying out market research in order to obtain funds for their nascent businesses.
Every business is a unique undertaking with its specific needs for capital. It is the responsibility of the entrepreneur to analyze how much he needs before setting foot in the market.
Financing Options to Raise Your Business Capital
Here are a few financing options that may fit your business.
- Crowdfunding for Capital
Over the past few years, advancement in technology has been nothing short of exponential. The Internet has offered an opportunity to every individual to discuss his/her problem with a wide range of people over social media channels.
Crowdfunding is set up for the purpose of allowing individual entrepreneurs to share their business ideas with a number of investors who are willing to put their money into the idea.
How crowdfunding works is very simple. Entrepreneurs make their business pitch on the platform for crowdfunding. They are required to discuss the business model as well as growth expectations. If the investors at the crowdfunding platform are convinced, they will donate funds to the aspiring start-up
Crowdfunding creates hype for business — its marketing is carried out almost for free while simultaneously collecting funds for the business.
The above chart indicates that there was a 30.89% increase in crowdfunding compared to 2017. Yet, the same chart predicts a decrease in the market.
If an entrepreneur goes to a financial institution or a seasoned investor, they will surely want some level of control over the business in order to secure their investment. This may prove to be a hindrance for the business. Crowdfunding does not pose this problem since the funds are generated by simpletons rather than professionals.
On the flip side, an entrepreneur must understand that the competition for crowdfunding is cutthroat. Securing investment through such a crowded platform could prove to be very difficult. There is always a chance of being simply overlooked within the crowd.
- Bank Loans
Banks are known to provide loans to the clients equipped with workable business proposals. Since banks are good at the game, it is imperative that the business plan presented to them is rock solid. It should also present a perfectly worked out profit figure, as well as the expected return on investment.
The banks will either fund the business from the very beginning or provide working capital to existing business for the purpose of expansion.
If your business requires a large amount of money, you should go to a bank. Banks can process the approval and disbursement in a swift manner. But, a bank will always want you to provide collateral.
A business is always at a risk of losing this collateral to the bank in case the business idea flops. Despite this inherent risk, loans provide many other services that are useful for a business.
- Personal Funds
Some people have a habit of saving funds. In fact, business minded people are sure to have some cash stacked away in a locker or a drawer at home. These funds are liquid and readily available.
Access funding can be arranged through alternate sources that provide types of business loans. These funding options are less stringent than banks when it comes to repaying them. They are also more flexible than banks. You are likely to succeed in securing the required amount due to easier terms and conditions offered.
Getting funds from friends and family is also a feasible option as your acquaintances will be less fussy about the interest rates.
It must, however, be kept in mind that this kind of funding does not work with large businesses.
- Venture Capital
There are many venture capital funds established with the purpose of proving money to businesses. These funds are run by professionals who are good at recognizing a great business prospect. Most venture capitalists invest directly into the business rather than its stocks.
As per Forbes magazine, last year, the amount of venture capital investment was at its highest level – $148 billion.
The above chart shows that the most favored form of investment for businesses during 2018 was venture capital which stood at 54%.
Venture capital is more feasible than loans scheduled through banks because their fund managers are able to gauge the performance of the company on a regular basis.
Also, a venture capitalist will act as a mentor to the business. They have past experiences of running businesses which proves valuable.
Yet, venture capitalists are interested in a business until their money is invested in it. Once they have recovered their money within 5 to 10 years, they will be least bothered to keep track of its performance.
The Wrap Up
Fund seekers are countless in number. Competition is increasing each day. In order to remain relevant in this herd, businessmen should seek out multi-processed sources of funding if they want to survive in the market.
The above-listed financing options for business capital are practical and workable. As mentioned, the requirements of each business differ from the other. The onus is on the businessmen to analyze all the above option and then, adopt the one that suits them.