Money is the live wire of every business unit. Every entrepreneur seeks to primarily maximize returns on investments in a business.
Sourcing for funding for your business has currently become a nightmare for various businesses due to the risk factors involved.
In this issue, we would share ideas on various sources of funding for businesses, whether startups or already established entities.
READ ALSO: Top tips for starting your own business
One major source of funding that usually comes to mind is a loan from your bank. A primary prerequisite for successful business operations is to open a bank account.
You can always rely on your bankers for fast loans, as your account, as well as other details can adequately serve as collateral.
The risk here is the interest rate charged on the loan. Banks are profit-making entities that source monies from various areas, including other clients like you.
The difference between the principal you receive from them and the final amount you pay represents the interest charged on the loan as per the terms of the agreement.
Bank loans are not usually good options for startups as the interest rate as well as other factors could cripple such a business.
Again, one can also request for overdrafts from banks, which are simply the difference between your present bank balance and the amount you request for, that is, if the requested amount is in excess of what you have in your account.
If approved, overdrafts leave you with debit balances on your bank account.
Another source of funding is venture capitalism with angel investors.
The principle here is simple; you would as per pre-arranged terms of the agreement give a portion of your business to the investor in exchange for immediate funding.
Angel investors are usually entrepreneurs with monies to spare, and their prime aim is to carefully invest in seemingly profitable ventures so that they can reap returns.
Again businesses can source funding from grants. Grants are free funds released to assist a business to execute its tasks.
Grants are usually from organizations that are inclined towards social work, so if your line of business falls in the category those that are helping to provide a need or assist in community development, you may qualify for a grant.
A business can fuse its operations with a similar business unit, and the two can attract more revenue, than when they operate as single units.
The practice of mergers and acquisitions has been a smart strategy for funding for so long.
The disadvantage here relates to the fact that either one of the businesses is “swallowed up” by the other or there is a mechanism for parity in sharing that may not go down well either one or both parties.
A smart way to have enough more to spare is to re-invest your returns into the business.
Ploughed–back profits or retained earnings assists you to consistently pile up resources for future use.
This is a gradual process, and it usually brings in bits at a time.
Certainly, it’s a preserve for businesses already in operation, because, you need to earn before you can reinvest.
Projects or programmes like launchings and promotions could also boost your business finances.
In fact, this mechanism kills two birds with one stone for you; it generates enough publicity for you, as well as bringing in some monies as a result of improved sales.
Some business ideas are shaped up in business incubators, and the organization putting up this mechanism usually provides seed capital for the idea.
It’s a great way for start – ups to jumpstart their ideas, but then the only catch is a correlation in idea between the new idea being formulated and the core goals of the organization putting up this mechanism.
In a bid to generate more capital, individuals and firms buy stocks and shares from companies; owning a number of these gives you a right in the decision – making process of the business in question.
It also ensures that you are eligible to receive dividends in the event of the company making profits and declaring their dividends at the end of an operational year.
By far, the smartest way to start, maintain and build a successful business is to fall on the safest strategy to fund your business.
Personal and family resources are a long-cherished means that guarantee the best outcome for the financial health of your business, as all income and expenditure “stay inside” the business.
There is a personal bond with the task, and it provides a stress-free scheme to raise money, as you are not really required to broadcast to any external source, the financial health of your business idea.
It’s also the most difficult form of access to funds as startups with ideas usually have little to jumpstart the business.
But at the end of the day, the choice falls on you the entrepreneur to determine which of these and more mechanisms you could fall on to kick – start the entire process.
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