It is well known that starting and running a business is a tedious process. It requires meticulous planning, timely execution, and efficient resource maintenance in order to become successful. In this day and age finding sources to finance your business is not a task that is bound to consume too much time and effort. This is all thanks to the better accessibility and availability of funds through plenty of means. This increased accessibility and availability can however cause confusion in the borrowing individual to decide on which form of funding can be ideal for them.
In this article, we will look at some of the best ways through which you can finance your business and analyze the advantages and disadvantages of each one of them so that you can choose the best among them for your business.
Top 10 Business Financing Options
1️⃣Bank Loans:
Bank Loans are quite straightforward in their finance offerings. A business loan provided by the bank is often subjected to less stringent rules and regulations and can be availed provided that all the necessary documents and other requirements are met. Bank Loans can be availed at a lower rate of interest with increased flexibility on their repayment.
Banks that are more oriented towards serving the entrepreneurial interests of their customers exist where a customer can easily get a loan sanctioned for their business setup without revealing too much data about their business plan or way of operation. The advantage of Bank Loans is that they are an established traditional form of fund procurement and are thus transpired with their offers while the disadvantage to this financing is that you might be held back with the amount of paperwork that you will have to comply with to get your funds.
2️⃣Line of Credit:
Line of credit are funds that are made available to a business as an arrangement whenever they require urgent funds. These line of credit options offered by the banks are similar to credit cards offered to individuals in the sense that they also have a predetermined limit that is based on the creditworthiness of that entity. In this case, the entity is the business, and the loan amount is given after looking at the credit history of the company.
Line of Credit is usually available in two forms: secured and unsecured line of credit. The Secured Line of credit carries a lower interest rate while the unsecured Line of credit carries a comparatively higher interest rate due to the lack of collateral backing the credit availed. Line of credit are highly flexible in their repayment and interest charges and can be utilized for these advantages. The downsides to this funding method are the increased chance of overspending, penalties for late payment, and the high interest rates charged after the last date for repayment.
3️⃣Personal Savings:
Personal savings are funds that an individual has saved up in any form that can be used to fund his business expenses. Personal savings are the most risk-free way to get funds as you will not have to worry about repaying it back to anyone and you will not have to be held accountable for losing it.
Another mode of fund procurement that can be looked at in the same nature is the funds that are provided to you by your closest relatives friends or even family members such as your father or mother for your business needs. These funds however might carry a small risk of losing the trust of your borrowing dear ones if you fail to honor the cause for which they have given you the money.
4️⃣Credit Card Financing:
Credit care Financing is a risk that an owner or partner in a business takes for the benefit of their business. It is a funding method where an owner or partner in a business uses his own credit card to fund the expenses incurred while doing business. These forms of financing options are only available for a limited time frame and will have to be repaid with high interest rates upon default. Credit card Financing is thus only recommended for smaller fund requirements and should not be taken for larger expenses due to the high risk involved in taking them.
5️⃣Crowdfunding:
Crowdfunding is a new-age way of securing credit through leveraging the crowd or the public to meet your credit requirements. Crowdfunding is usually done through popular crowdfunding platforms by leveraging various means of social media to bring the attention of a large crowd of people to a particular project. A new form of crowdfunding option has recently opened up called Equity crowdfunding wherein the business will not have to give up too much of the control that they have over their business to large investors and instead will only have to provide a small portion of the equity in their business to a diversified investor pool.
6️⃣Peer-to-peer Loans:
Peer-to-peer loans are a way for business owners to connect directly with an individual or a private lending group and fix the terms for the loan they lend. These forms of loans can take place in a formal setting like a lending website or through other indirect means such as through an agreement for repayment between the two parties. This form of financing is however pretty expensive as the lender might ask the borrower to pay them higher interest rates or could offer them a relatively lower repayment term than other loan issuers such as banks.
7️⃣Venture Capitalists:
Venture capitalists are individuals who look into the various aspects of a business venture and invest funds in them in return for an equity stake in the business. Venture capitalists investors often take a chance on a particular business venture and face a high risk of losing their investments if the venture doesn’t work out well. On the flip side, VCs also stand a good chance of making big bucks if the venture becomes successful.
There are a number of websites and programs that help small businesses connect with venture capitalists and secure their investments. One of the most popular Venture capital platforms is Shark Tank, where investors can make their pitch for their product or service and secure funds from the Venture Capitalist.
8️⃣Grants:
Grants are funds that are given to a business venture in the form of free money if the recipient meets certain criteria set up by the Grant granting authority. Grants can be considered as an award given to your business by a government agency or other venture-promoting entities that need not be further acted upon.
These grants are highly helpful for any scale business as they can be surplus funds that they could use to fuel their research and development works or act to fill the financial gaps that occur in their business during its working. There isn’t much of a downside to this form of funding as there is no liability on the business to repay the amount.
9️⃣Equity Offering:
Equity offering is a process by which a company sells a percentage of its shares to outside investors to raise capital for its financial needs. Equity offering can be done through a variety of means. The most renowned form of equity offering is through an Initial Public Offering (IPO), which can give the business an amount of advantageous exposure and help them procure funds within a quick frame of time.
During the process of Equity offering the offering company essentially gives up a percentage of its share control to make funds for its running. This lets the company raise its fund requirement without drowning itself in any debt.
This gives the company their required funds and the shareholders part ownership of the company. If we look at the disadvantages of such a fund procurement option we can say that offering equity to the company can lead to a lack of control over the company for the running parties and can put further pressure on the company to keep its share prices stable and ensure its growth.
🔟Business Incubators:
Business incubators are organizations that are set up with the specific purpose of assisting and promoting startup businesses. These incubator firms can be either of a for-profit or non-profit nature. Business incubator firms can be one of the source or a source provider to procure funds for the business. Business incubator firms choose a firm from a list of startups and give them all the assistance they need by providing them with other additional help such as the following :
- Providing access to Business consultancy and advisory services from experienced professionals
- Assistance in choosing a space to set up its office along with procuring the hardware and software required for running the business
- Connections to a large amount of data and information that the firm could use to enhance its operations.
These additional services are also part of the assistance that business incubators provide to their business partners in addition to acting as a facilitator to acquire finance.
Bottom Line
From the list of options we have gone through in the sections above we can find a lot of options that might appear suitable for our financial needs. These options must be considered carefully alongside their advantages and disadvantages in order to make sure that it is the right choice for your business.
