If you own a business or just set one up, you surely understand or have come to terms that funding is the essential part of running a business (besides the business idea itself).

This is because, no matter how good your business idea or concept may be, it still requires capital to be actualized in real life; there’s no way around that. And although you may not have total control over your business’s success as there are other factors like market atmosphere, demand, inflation, the economic system, etc., that also affect your success, acquiring sufficient funding helps a huge deal.

So how can a business get financial support? And what are some ways and methods of securing capital that you can make use of to put your business on the path to success? Let’s discuss.

HOW TO FINANCE A BUSINESS VENTURE

Although there are various subsets and hybrid ways to source finance for your business, the two significant financing types that a small business can utilize to gain capital are; Debt and Equity.

Debt

Debt is a way of funding your business that provides a credit line (loan at a set amount) that may be used to support your business. This money will, however, have to be paid back in a specified time frame.

Loans can be granted without requiring assets for collateral; these are called ‘unsecured loans,’ but to increase the possibility of your loan application being accepted and the loan amount, submission of assets as collateral are usually a prerequisite.

Equity

The other way to finance a business is by selling a part of your company. This type of transaction does not require you to pay back because rather than borrow money from the other party, there was an exchange of capital for assets, a ‘stake’ in the company’s future.

The funding party gives you a set amount of money, and in return, they gain a percentage of the benefits, cash flow, and voting rights equal in value.

7 TIPS ON FINANCING YOUR BUSINESS

Below are a variety of avenues for an entrepreneur to acquire investment for their business ventures;

1. Bank loans and line of credit

This is a prevalent mode of getting capital for businesses which most people are familiar with. It involves applying for a certain amount of money to be lent to you by a bank which will be paid back in full (including a percentage interest depending on the terms of the agreement) by a predetermined date.

This can be paid in installments ranging from months to decades, depending on the nature of the loan. However, this type of loan is difficult to attain for startups as banks usually look at present cashflow, which isn’t always available.

2. Factoring

Factoring, also referred to as invoice financing, is a type of financing that has been growing more popular as more businesses realize its use. This form of funding may be accessed by already functioning businesses who require advances on their outstanding accounts receivable; this means you’re awaiting payment from your clients or customers.

Factoring or invoice financing is a great tool for businesses whose clients are slow in paying their invoices by providing the capital in advance before payment is received, which then use to payback.

3. Peer-to-Peer lending

Also called marketplace lending, this is a method that has been popularized by the advent of the internet. In this type of funding, lenders are introduced to borrowers and vice versa through the use of specialized websites.

Popularly referred to as the dating platforms for money lending, websites like Club and Prosper are great examples of the potential of P2P lending. In this form of borrowing, all you have to do is register on a P2P website and get connected to a lender.

4. Crowdfunding

Crowdfunding is a method of raising funds that is lateral to methods like bank loans and Angel investing. It involves a process whereby a platform allows budding businesses to pool differing sizes of investments from several investors rather than seeking out a sole source of investment.

These types of platforms, although very helpful, need to be utilized with caution. You should read the fine print as some equity crowdfunding platforms require process fees or for you to reach your financial goal before you’re given access to any of the money raised.

5. Getting a financial partner

You can solve your company’s financial problems by getting a partner who has special access to your staff, resources, profit, and has an equity stake, etc. This mode of funding is usually overlooked by business owners as most people want to retain 100% ownership rights of their startup. However, the positives of this type of financing must be pointed out; they include; financial support, access to a larger customer database, marketing programming, etc.

6. Convertible debt

This is a popular business model used in a lot of industries, including music, I.T which involves an investor or investor group providing your business with the money needed to startup for a fixed return rate per year.

The payment remains constant until the debt is paid unless an agreement to convert the debt to equity is triggered. It is great for cash flow, but the downside of this sort of financing is the loss of sole ownership.

7. Microloan Program

Microloan programs are a great alternative for entrepreneurs who want to finance their startup or boost their businesses.

This program offers up to $50,000 in loans by the use of intermediaries who also offer management assistance and may require training as a prerequisite to providing the loan. It is a suitable avenue for borrowing money, and the additional training and assistance make it a worthwhile solution to your capital problems.

CONCLUSION

Sourcing for funding for your business is a skillset in itself, a skill all entrepreneurs must master. The tips provided above are in no way exhaustive as there are countless other methods for acquiring capital, including angel investors, merchant cash advances, Accion, purchase order funding, among others.

There are no good or bad ways to get financing (apart from illegal means); you just have to go with the choice that serves you best. Also, remember to have a financial expert/attorney look over your agreement before you sign on the fine print for any grant or loan; lenders are not your friends; it’s just business.