How to Get Financing For Your Small Business

10 Major Ways to Fund Your Business

by Jaswanth D

Money is the most important element of a business. No business could have survived one day if they didn’t have any money. Money helps businesses get through rough patches or sustain their daily operations. Even if you want business assignment help from your family members, you will need money to buy raw materials and to maintain overheads. So, before planning a business, it is essential to chalk out how and from where you can get funds.

Usually, business planners spend days and countless meetings deciding how to plan the funding. If you plan to start a business from scratch, you will also need to understand how to raise funds. However, one needs to be aware of the concepts of debts and equities and whom to ask for funds to successfully implement a plan. Here we discuss ten major ways to fund your business –

  1. Bank Loans

This is the most traditional method of getting loans. Businesses apply for loans through banks. Nowadays, you can also apply for a business loan through your mobile banking app instead of visiting a nearby brick-and-mortar store. Banks are large institutions that can fund any business. However, usually, they do not provide you with 100% of your loan requirements.

Banks will always ask for collateral, like your assets or a down payment from your own money. Many factors decide whether you are eligible for a loan from a bank. This can be –

  • Your personal relationship with the bank
  • Credit history
  • Debt history

Although there are some instances of unsecured loans, usually, these loans are offered to the customer by the bank based on their relationship.

  1. Alternate Lenders

There is no fixed definition for alternative lenders in financial terms. We term all non-banking lenders as alternate lenders. The biggest difference between a bank and an alternate lender is that you need to pass through stringent criteria checks and long applications to get a loan from banks. However, you can get a loan amount much more easily from alternate lenders. Although these lenders offer money without many security measures, the interest rates are always much steeper than any banking institution.

Some of these mediums are backed by CFDI, SBA or some trustworthy institutions and focus on community development. However, most of them are online lenders without any regulations. They promise quick cash disbursal with high interests.

  1. Self-Funding

Some business owners are forced to self-fund their businesses because of many reasons. For example, they may have a bad credit history or lack a current account or other necessary documents. Whatever may be the reason, in this method, the fund has to be entirely generated through personal savings, credit cards, or a home equity line of credit. Although you are not answerable to anyone in self-funding, it certainly exposes you to a lot of risks. Surely, you can get quick cash disbursal. However, that also puts your entire savings or your house at stake. So, if the business fails, you and your family can get severely affected through self-funding.

  1. Crowdfunding

Crowdfunding is a new method to raise funds quickly, and it has been a revelation among many new-age entrepreneurs. We can find many recent success stories that started with crowdfunding. However, although crowdfunding is an excellent way to raise funds while minimising your risks, you need a little bit of luck to become successful with this concept.

You need to have a solid, foolproof business idea and good connections to reach a lot of people in crowdfunding. If your business does not promise immense growth potential and a clear trajectory, generating money from unknown people in the market can be very tough. Although you do not come under any direct financial loss in crowdfunding, you will still remain under a lot of pressure to show some early wins to maintain the confidence of your investors.

  1. Grants

Grants are basically free money that is given to businesses for their improvement. However simple the concept sounds, getting hold of a grant is extremely difficult. First, every business owner must understand that there is no such thing as charity in a business. So, there are numerous regulations and criteria to be eligible for one. Not to mention, the race to get a grant can be extremely competitive and targeted.

  1. Private Financers

Private financers are usually rich businessmen and retired high-level industry professionals who look to invest in small businesses. They usually are wealthy and have a good financial backup; however, this approach comes with a different challenge.

When you depend on a senior professional for funds, they will always advise you on how to run the business. Although their inputs may have value, not everyone has the same openness to listen to others while running a business. So, you must question yourself about this factor before deciding on private financing. If you are ok with the external interference, you can set up an advisory board, and this board will oversee the entire project before making any funding.

  1. Strategic Partnerships

This is a very effective way to raise funds if you have a large business and are open to supporting small ones. A strategic partnership can be a win-win situation for such businesses since one business can have the right manpower or technical prowess, and the other can have the necessary financial pull.

We can see such examples in the tech or drug industry. For example, Pfizer recently formed a strategic partnership with BioNTech to roll out the Covid-19 vaccinations. Hewlett-Packard also went into a strategic partnership with Disney for their ultra-hi-tech mission: SPACE attraction.

  1. Angel Investors

Angel investors come as individuals or in groups to help your new business to take off during the early stages. However, convincing an angel investor to help you is not easy. They undergo a severe screening process before they decide to invite you to make a pitch. Usually, they can invest anything between $50 thousand to $5 million, depending on the pitch.

  1. Venture Capital

Venture capitalists are usually tycoons who only look for major players to invest in. For a venture capitalist, the minimum investment amount starts from $5 million. Venture capitalists usually stay invested with the companies for a longer time than Angel investors and look for convertible debts and equities of the company.

  1. Friends and Families

Your friends and families are the people who would love to see you successful, and if you need urgent funding, you can always reach them. In addition, your friends and families can always help you with small yet invaluable funding during dire situations.

Summing Up:

Every business is unique, and each of them needs separate strategies to raise funds. So, you cannot have a set formula for every business. Instead, go through these funding techniques and decide which way is the best for your business.

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