Maybe you have plans to set up a new business or to expand your business and your aren’t sure how you will get funding. Determining the best source of funding can be a bit challenging especially to the people who are planning to set up a new business nevertheless there are several sources that can accommodate various individuals or groups as follows:
- Personals cash – This is the best source of financing since you already own the cash. You don’t need approval or paperwork hence quick and easy to invest with.
- Personal credit-If your financial needs are within a reasonable amount, personal credit can be a good source. Approval is easy if you have a good credit record.
- Personal loans-Friends and Family can provide loans though there is a risk of you not paying them back hence having a devastating effect on your personal relationship with them.
- Unsecured loans-Provided by banks and credit unions. The bank doesn’t ask for collateral for smaller amounts, so the interest rates might be probably higher than the a credit card or secured loan.
- Secured loan -This requires collateral mortgages, automotive etc. If you don’t make the payments, the lender can legally seize the property promised as collateral. This loans are much larger than the unsecured ones.
- Bonds-Instead of asking a bank for a loan the business asks individuals or other companies to loan them money directly. Bond purchasers give money directly to the business which is then paid back at an agreed upon rate for a certain period of time. When the bond matures the business must give back the original loan amount in addition to the payments already made. Since the legal and regulatory process for the bond market can be complicated, this is typically conducted through an investment banker.
- Receivable Financing-A special type of secured lending unique to business receivables. The collateral for the loan is control over the business receivables. Since the bank controls the receivables they can ensure their loan is paid before anything else.
- Angel capital-An angel is an individual, private investor with excess wealth that he/she would like to invest in a private business ($ 10000-1 M) in exchange for a % of the business.
- Venture capital-These are extremely wealthy investors. They are able to provide large sums of capital tens or hundreds of million of dollars in a single investment. V Cs usually require large amounts of control in exchange for large amounts of capital meaning that they can have seats on the company’s board of directors.
- Public stock offering-This involves selling partial ownership of the company to investors on the open market. This is usually done via investment banks.An initial public offering (IPO) is simply the first public stock offering a company offers on the open market.
Sourcing funds from outside can be useful but be cautions of giving up the control over your business operations.