Sources for financing a business

 

Financing is when someone sponsors any business activities, makes purchases or puts their money into any financial scheme or commercial venture. Financing is required when you want to start a business or when you want to expand your existing business.

There are two main types of finance, debt finance and equity finance but before determining the source of finance, you need to be clear on a few points as to the average amount of money you would need for the business, whether you would be able to repay the loan or not, a good business scheme and the amount of time it would take for you to pay back the loan.

If you are starting a new business, you can raise money in many ways to finance it. You can do self-financing that is you can use your own funds to finance your new business or enhance your existing business also. This comes under equity finance. You can use your own savings, sell your personal assets, withdraw your cash in the retirement account earlier, use a side job and raise money for a new business. 

If self-funding is not possible in your case, you can borrow from friends or family. They can be easier to persuade than others. Getting money from friends or family comes in both equity and debt finance as they can either lend you money as a loan with an agreement of specific loan terms or they can give you money but with the condition of getting share in your business or becoming your business partner. But care must be taken as if the business fails, your personal relationships may be affected.

In order to get business finance loans you can also contact financial institutions like credit unions, banks and building societies and use your credit card to buy the items for your new business, get a home equity lines of credit if you own a house or use an overdraft. This comes under debt finance.

Venture capitalists can also invest in your business if it has profit and growth potential but they do this at equity stakes to cash out their stake. This comes under equity finance.

If you can’t get finance through any of these sources, you can always find private investors who are rich and successful business owners that would like to invest in your business. They are also known as business angels or angel investors. They also come under equity finance source and they would also guide you about business from their personal experience.

Peer to peer lenders are the people who can invest their money in your business if you want to get a loan. You have to make an agreement about the interest rates and the time period in which to repay the loan. This comes under debt finance.

You can also collect finance for your existing business or a new business online through social media and websites where a large group of individuals i.e. a crowd can make collective attempts and raise cash for you. But these efforts have the possibility of failing. This also comes under equity finance.

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