Lacking the right amount of funds to get a business off the ground makes it extremely difficult to succeed. In order to finance a start-up, business owners need to pay for a range of things, from developing and producing a product and paying employees, to spending enough money on marketing. Not having enough to pay for everything might make entrepreneurs ‘give up on a great business idea. But which financing options are best?
Both traditional and modern methods of funding can be a way to generate enough growth – a bank loan and the more modern funding methods, such as invoice financing or crowdfunding.
Why would a business need to take out finance?
The competition is always growing – and other businesses may have more funds available. Businesses such as Deliveroo were heavily funded, which allowed them to establish a firm place in the market and become a highly popular brand. Areas such as marketing and advertising can be very expensive, but without them, it will be incredibly hard to reach a wider audience in order to grow. Even successful businesses can run into cash-flow problems or may need extra funds to launch a new product. Having money to spend on a business is never a bad idea.
What is the difference between equity finance and debt finance?
Equity finance means that a part of a company is sold to investors. Equity typically doesn’t need to be repaid but business owners will likely have to give up some rights and privileges. Debt finance is borrowing money and paying it back in installments or over a certain period of time. Interest can be high when paying for debt finance loans, especially when taking out a short-term loan. Both have their pros and cons.
The different methods of finance
Angel investors are usually not bound by the requirements of a larger investment group. They typically like to invest in upcoming start-ups and technologies and may be more willing to take a risk.
This is a method to get early investors to take an interest in a company that has not yet been listed.
Private equity can mean gaining an investment by venture capitalists or forming partnerships in order to raise funds.
A traditional bank loan might be a good option for small and medium-sized businesses looking to boost their growth in the early stages. Considering the financial history of the business is not too bad, it is typically not hard to get a bank loan for a business with a good business plan.
Invoice financing is a way to get by if a company is suffering from cash flow problems. Since businesses may experience problems when invoices are paid late by customers, invoice financing gives brands the option to cover their expenses and still have enough funds available.
This is a very risky type of loan. It may not have to be paid back but is secured by an asset, such as a home.
Funding options can help businesses grow and secure the funds they need.