The world of business orbits around capital which is possible through business financing. Your financial activities determine your productivity and growth. Thus, how much money you spend on your business stimulates operations and economic growth in the long haul. Businesses that have no substantial funding may explore financing options for proper capital.
3 Major Financing Methods for Businesses
Businesses are not created equal. Some have enough financial resources while others need financial support. How do you get the funds to finance your business especially during its startup phase? Here are 3 financing methods to explore:
It refers to the financial resource from individuals or companies that basically invest in privately held and young businesses.
Financial institutions are credit unions or banks that offer lines of credit to the company.
Another type of small business financing is friendly loan. Ask friends or family with money if they can help finance your business.
Venture capitalists provide capital to fresh new businesses in exchange for share ownership of the company.
Companies that can apply have startup businesses or those that require financial assistance in order to upgrade or develop their business much further.
Friendly loans may also be in a form of investment ownership in the business or loaning money with an agreement to repay the amount.
Most venture capitalists do not provide initial financing to the business unless the company already has a proven track record. Companies that have competitive advantage in their niche are most likely to secure a venture capital. Most investors that offer venture capital are hands-on in their approach to investment. Thus, they seek representation on the BOD or managerial staff in the business.
Financial institutions require application in order to secure this type of business financing. The process includes proposals from the business as to the length of time that the money will be used. The proposal also includes the reason why the funding is important. Financial institutions charge interest on the loan at either variable or fixed rate.