Are you considering entrepreneurship and buying a business? Are you considering franchising? Raising finance for buying a business or securing external funding can tend to be a daunting process especially when you are a 'rookie' in the industry, and venturing into business for the first time or running small enterprises. Financial planning is very crucial to avoid making decisions or mistakes that can affect you for years. Only a few options may come to your mind, but there are many more you can explore. Consider some of the common financing options outlined below to make an informed choice.
Options provided by the bank include:
Financing From Banks and Financial InstitutionsBanks offer a wide range of financial support options for businesses apart from offering advice on suitable financing options. A lot of financial institutes offer special financing and programs for small business owners. Consider working with Small Business Administration-backed lenders. An important step to take when deciding what is best for your personal situation is to entrust the services of your CPA or financial advisor. That individual is most privy to your unique circumstances and will help you make the best, most realistic decision on financing your dream.
Options provided by the bank include:
Fixed term business loanThis option allows you to borrow money from the bank over a definite period of time which is to be repaid with interest according to agreed installments which in most cases is monthly. Part of the money borrowed can be used as working capital to support the business or your other plans.
Borrowing against assetsYou can use your equipment, inventory, and equipment to borrow money from the bank. The amount to be given by the bank depends on the value of the assets. Using this financing option can come in handy as an investment or working capital for your new business.
Cash-flow financeThis financing option allows you to borrow against the value of your unpaid invoices. It means you can be awarded up to 85% of the approved invoice's face value. You will then receive the remaining funds of the invoice excluding the charges of the financing service.
Finding Your Village of InvestorsDeciding to go against a bank loan or line of credit means you'll have to secure financing for your business elsewhere. Of course, asking for investors in any economic climate can be challenging, whether you're looking for start-up funds, or capital to continue an existing business. Here are some ways to secure financing from investors.
Personal InvestmentThis financial option means sharing your enterprise (or equity) for investment by a third party to improve liquidity. Unlike business loans borrowed by a bank, you do not need to make any repayments on the money invested. However, the people who invest in your business are likely to strike a hard bargain regarding shares in the enterprise on return on investment. This solution is often used for financing growth plans for scalability.
Business grantsWhile there's no such thing as free money, a business grant can go a long way to help small business owners in their venture to be successful. Conduct research on what you can qualify for, and apply even if you think you'll fall short of qualifications.
CrowdfundingA new-age way of funding business, charity, and other start-up enterprises, crowdfunding has become a viable option for a wide array of organizations to gain the financial support they need.
Other Sources of Financing
Family and friendsMost people would go for this financing option when buying a business or in need of money for other purposes but it's important to weigh the pros and cons.
- Borrowing from friends and relatives means more flexibility because they know you and may be lenient and give you more time to start making profits in your business.
- You can take advantage of this situation and also borrow a loan from the bank and start with the bank loan which has strict policies and still pay back your loved ones as agreed.
- You risk damaging your relationship in the future in case of any ambiguities
- Investment or borrowing money from family and friends is a serious commitment which requires serious terms
If you're looking into becoming an entrepreneur, and owning a business is on your list of possible business ventures, financing your dream requires much thought and research. Ensuring you make the best decision based on your personal and professional situations is crucial to your success and well-being as a business owner. If you don't know what options you have, or which is best, consider a business advisor whose experience and expertise will help you lead the way to to financing that makes the most sense.