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5 Methods of funding for Small and Medium Sized Businesses

5 Methods of funding for Small and Medium Sized Businesses

Since Covid’s occurrence in 2020, the world essentially came to a halt. Businesses are finding it increasingly difficult to operate when millions of people are dispersed because of the expanding public health issue. Those who did manage to sustain their businesses did so only because they had the appropriate strategy and financial planning in place. But what about firms that have limited understanding of finance techniques and appropriate tactics to utilize? Money is used to run a company, like fuel being used to run a car. If a firm requires funding, it will eventually have an impact on its operations, contributing to business failure. There are a variety of ways to acquire finance; a company must select the one that best meets its needs, so it is able to adhere to the conditions. Some common options to consider include angel investors, friends and family, bootstrapping, crowdfunding, and bank loans. A company may require financing for a multitude of reasons, including keeping enough working capital, acquiring assets, expanding the company, debt restructuring, etc. Let’s take a closer look at the various funding options to see which one best matches your company’s needs.

Angel Investors:

Angel investors are prominent individuals who are interested in investing in small and medium-sized enterprises in exchange for a share of equity, or ownership. Not only can they add monetary value to businesses but can also contribute their expertise, knowledge, and contacts. A company must be aware of what angel investors usually take into consideration while providing funds to companies. They are primarily interested in professional management, potentially profitable enterprises, and profound business training in the understanding of products and services. Businesses can now connect with these investors effortlessly and may locate them on several websites with the help of the Internet. For instance, you may find Angel NV  in Nevada or Florida Funders in Florida as options. When a company’s donated resources are depleted, it’s typical for the owner to pursue this type of funding. This route may be the ideal choice for businesses that are well-established enough to have succeeded through the startup phase, but remain in the early stages of growth and require capital to develop a product or fund other operations.

Friends and Families:

Obtaining funding from friends and relatives may be one of the most basic methods of seeking funds. It is far less formal than any other option available but continues to maintain professionalism. They may issue you a loan for free or for a low interest rate, with the expectation of a smaller initial return. It would be easier to persuade them than any other possible investors. When a company is just getting started or in its early stages of expansion, this form of financing may be the optimal choice. It is preferable to have documented repayment arrangements and conditions to take the proper course of action if a problem occurs, this also includes business compromising personal relationships. It’s also vital to speak about the dangers and any other important business information upfront and obtain business planning tips from a professional. Friends and relatives may help financially in a variety of ways. For example, it could be in the form of a gift, loan, or equity. Gifts are the most common type of funding compared to loans and equity, being that the money given with no attachments

Bootstrapping:

Bootstrap financing is all about identifying and pursuing previously untapped prospects, which may be as easy as improving your financial management so that you can obtain the necessary retained earnings. This approach is excellent for firms that can maximize the use of their resources so that they can manage the needed funds without relying on anyone else. An organization should look closely at the lower cost but elevated alternatives so that the investments in the company’s growth will gradually emerge on their account. In the case of startups too, you can use your own personal savings effectively and accurately to kick start your business and keep going. If you manage to run your business with bootstrapping then the crucial and comforting benefit of it is you will own complete control over the business and its vision. When you have no loans to pay obviously you have not much weight and pressure to bear. This option would be perfect for businesses that require less capital to start. As the business starts functioning smoothly, the profit can be used to fund the further growth of the business.  In this scenario, managing your finances is crucial and may require assistance from a business consultant with a finance and strategic planning background

Bank Loans:

Receiving bank loans for your business involves a system of checks and balances. To maximize the potentiality of your business, you must communicate effectively. It entails having adequate business strategies, the intention and utilization of funds, maintaining proper financial records that satisfies bank’s standards, and much more. You must be able to demonstrate to the bank that you will make timely payments. Before asking for a bank loan, one should exercise caution because failing to repay the debt, including interest, may end in bankruptcy. Business owners should only apply for business loans if they are necessary; otherwise, they should consider other options. This approach may be the best alternative for the owner, especially if he or she wants to keep ownership. Businesses can take advantage of the low interest rates and simple repayment alternatives offered by several institutions. When cash flow is low, a business loan may be quite beneficial. You can apply for loans tailored to the direct business needs, as there are various forms of loans available. For example, the SBA 504 loan is intended for the financing of large fixed assets that will position a company for growth. Other community development financial institutions (CDFIs) also offer short term and long term loans that are specific to community based businesses.

Crowdfunding:

Crowdfunding is the process of raising minimal quantities of money from a wider target audience, however there are several platforms where you may do so. Kickstarter, Crowd Supply, Crowdfunder, among many others come to mind. To be clear, we are not selling any equity; instead, we are receiving a sort of contribution, and by choosing this option, we may not only get cash but also create networks. If a fundraising campaign is successful, crowdfunding sites generally charge a fee to the fundraiser. Crowdfunding platforms are required to deliver a safe and user-friendly service in exchange. According to Nav.com, there are also several forms of crowdfunding such as:

  • Rewards crowdfunding
  • Donor crowdfunding
  • Debt crowdfunding
  • Equity crowdfunding

 These five methods of funding are available as possibilities and could potentially help in obtaining the capital you need to build the  firm of your dreams. It is critical for every entrepreneur to identify the best strategy for obtaining funding for their company. If you’re having difficulties deciding which choice is ideal for you, consider contacting a consulting firm like Black Swan Consulting, Inc., who can walk you through the process of determining which options are best for your company.

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