Do you need to inject some funds into your business? We take a look at your funding options.
Quick takeaways if you’re in a hurry
- There are many ways to raise funds to support your business, it’s up to you to choose the most sustainable option and minimise the cost of borrowing
- If you borrow or accept investment from friends and family, take time to document your agreement and protect your relationships
- Investors are challenging to motivate. Make sure you know your market and the opportunity well before you begin any conversations.
Read on: Funding your business: 12 ways to access the cash
[estimated reading time: 5 minutes]
Whether your business is new and/or experiencing growth, or you’re looking for funding to achieve your company’s next development, you’re probably going to need to raise some cash.
There are lots of options if you’re looking for funding for your business. We’re going to take a look at 12 ways that you could access the cash you need.
1. Existing earnings
If you’re setting up a new business you may still be working in your regular job. Don’t resign until you’ve had a chance to take a look at the options and work out whether it’s possible to keep doing your day job long enough to get hold of the money that you need. A regular income from an alternative source could be a viable way to fund your next venture.
2. Selling assets
You may or may not want to borrow against your house, but before you consider real estate take a look at your other possessions. You should be able to make a quick assessment and establish whether you have anything that’s worth selling to help you raise the finance that you need.
Don’t just think big ticket items – you could have a garage sale to sell a broad range and declutter your house at the same time. And anything you raise is money you don’t have to borrow.
3. Side business
If you’ve already got a business in play, you may find that you can use the earnings from this to finance your next venture.
4. Credit card
Credit cards are a popular and easy source of funding for new businesses, but do carry the risk of high interest rates if you’re left unable to pay the balance in full every month. In addition any cash withdrawals will probably incur immediate interest, which can make credit cards an expensive way to borrow money.
5. Family and friends
You may have friends or family who have cash available and are keen to invest it with you or lend it to you to help your business to grow. Borrowing money from friends and family is a great solution to your cashflow shortage but can be problematic and risks impacting relationships.
Make sure any money that changes hands is clearly documented and you have written agreement: this will ensure that everyone has the same expectations about when/if the money will be repaid, or what they get in return for investment.
6. Product pre-sales
Pre-selling your product is a great way to raise funds for inventory and also demonstrate the potential of your business to other investors or possible retailers. Make sure you set clear timelines for delivery of the product if it is not available at the time of selling. You can manage the process through crowdfunding by using a social crowdfunding website.
7. Bank loan
Bank loans for businesses come in various shapes and sizes, but the basic structure tends to be the same. You borrow a set amount of money, with a pre-determined interest rate, and offer some kind of asset as security against the loan in case your business fails. Repayments are made regularly for the duration of the loan.
If you do go for a bank loan try to keep it as a short term solution otherwise it could add considerable cost into your business. Take some time to shop around for an interest rate and features and benefits that will suit your business.
8. Invoice finance
Invoice finance is a good option for businesses who are struggling to manage the gap between invoicing their customers and receiving payment. It’s also a good option for funding growth, as it offers quick access to funds that have already been earned but have not yet been received.
Businesses who need cash can sell their issued invoices to a finance company who will advance the funds and then receive payment direct from the customer. The finance agreement is usually short term and the business can either absorb the cost into their margins or build it into their price.
Crowdfunding is the process of receiving small donations of funds from a large number of people in order to achieve a fundraising target. There are a number of websites offering crowdfunding services and connecting those who need money with those who have it to donate.
In return for helping you achieve your goals your investors will usually receive a small gift – for example one of your products – or a reward of some kind. Equity crowdfunding allows investors to donate money in exchange for a share of your business.
10. Angel investors
Angel investors are on the look out for succinct, jargon-free pitches from business who are knowledgeable about their product, their market and their opportunities. They are not keen on following trends and would rather the businesses they invest in were defining them. They’re also not easy to persuade to invest.
If you do manage to get an angel investor onboard you can expect to enjoy the benefit of their experience as well as their money. But this does come at a cost – angel investors usually expect a return of between 20 and 25%.
11. Venture capitalists
Venture capitalists are very careful about where they invest their money. They prefer established businesses within fast growth industries and businesses with solid exit strategies.
12. Competitions and grants
If your business is operating in an area where the government or larger corporations are keen to drive development, you may find that you have the ability to enter competitions or apply for grants that could support your funding goals. This could be industry specific or across a certain type of development such as sustainability.
Invoice Finance, Cashflow Solutions and Business Loans
Fifo Capital are experts in cashflow solutions for small to medium business. Find out more about invoice finance and our fast business loans here: