Business expansion is an absolutely essential characteristic of business success, but getting funds for businesses and to find solutions for expansion may be a herculean task. No matter whether you plan to increase the capacity of a company to create new products, or enter new markets, proper funding is needed. In this article, we have reviewed the five most widespread types of funds and have searched for ways to develop your business with the pros and cons of each choice.
1. TRADITIONAL BANK LOANS
Bank loans are one of the most used types of financing among the enterprises. The financial experts provide an initial amount of cash that is received with the agreement to pay it back in installments, plus interest, at a certain period. These loans can either be backed up by collateral securities or the so called, non-collateral securities.In respect of the ability to predict the costs and values, fixed interest rates and the repayment timetables make the financial picture certain. Some of them perhaps demand a good credit record, a clear business plan, and sizable security.
2. VENTURE CAPITAL
Venture capital is financing with the help of investors who contribute capital for the business in return for the stakes of ownership in the business. It is usually obtained by high growth venture companies and other innovative companies. Most of the venture capitalists have a wealth of knowledge, time, and contacts in the industry. Large sums of funding can be received which is useful for the fast expansion of companies.
3. ANGEL INVESTORS
Accomplished venture capitalists, and angel investors are rich people who invest in startups and receive the ownership stake in the firm or debt that is convertible into stock as a form of payment. They are usually involved in the financing of the business in its infancy. The general terms of Investments can be more relaxed compared to those in the loans offered. As for venture capital, ownership has to be given up by entrepreneurs. Perhaps, angels are in a position to anticipate high returns on their securities.
4. CROWDFUNDING
Crowdfunding is the process whereby a large number of people contribute small amounts of money for a certain project usually via the Internet. That is why it is particularly utilized to finance definite ventures or goods. A good crowdfunding appeal can help to confirm that a market for a certain good or service exists. Companies get their support and customers of their products so that when the new product is to be launched in the market, they can start getting customers. For crowdfunding to be successful, there needs to be a huge promotion which coupled with a good and passing narrative.
5. GOVERNMENT GRANTS AND SUBSIDIES
Government grants and subsidies are monies that are not repayable and are offered by the government specifically to help businesses usually in the technological, research, and innovation industries. Grants can be categorized as they do not form part of a financial requirement often imposed on loans, which are to be paid back. Grants are usually aimed at the support of particular projects thus stimulating the spending on research and development and technology. Getting a grant from the government helps improve the standing of the business and gets further funding. It more often gets very competitive to secure grants,and this always calls for the preparation of some good proposals. They must be used in a way that is prescribed by the grant agreement which implies less maneuverability. The process of using such funds usually takes time and it is not a simple process.
There are various key factors that determine the choice of funding source for a company if you are in need thereof. These include:
– a large amount of capital, then venture capitalists and championship rounds may be right for you.
– If you have a young business, then angel investors, or crowdfunds might be for you.
– If you are willing to give up equity in your business then venture capitalists and angel investors may be for you.
– Each of the implementational options mentioned above has its pros and cons. Analyzing these and other related options and their relation to the company strategy is beneficial in gaining the funding needed for development and future prosperity.
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