Financing is a never-ending process for business owners and entrepreneurs, whatever their size or industry sector. If you decide to seek out investors, take out loans, or self-finance using your own funds, selecting the appropriate financing solution for your company is vital. You shouldn’t choose an approach to financing just because you saw someone else utilise it and assume it would be effective for you. Your options for financing should be tailored to the objectives you have established for your company as every company has a different set of objectives.
If you are thinking about looking into financing options, you should ask yourself these two questions:
Does my business really need financing? – Look for the best financing options if your company needs to finance projects, expansions, or even acquisitions—basically, operations that will increase revenue and profits. However, you should consider redesigning your company strategy as opposed to seeking funding if you require finance to cover staff wages and other expenses.
What is the current state of my business's health? You need to be cognisant of your company's financial health, including whether you qualify for loans and whether investors would be interested in investing in your company.
Funding options
To finance their business operations and projects in accordance with their goals, companies can choose from among the following funding options:
Self-funding: This is one of the safest options and is typically utilised by small businesses or start-ups. In this type of financing, the business owner uses their own capital to support the company out of savings or by reselling valuable personal property.
Debt financing: Debt financing is the process by which companies raise money by selling debt securities like bonds and notes. One advantage of debt financing is that you don't have to give up any of your company's ownership. In addition, debt financing raises your company's credit rating.
Equity financing: When a company raises funds through equity financing, it offers investors shares and stocks representing a portion of the business. The investors get ownership rights to the company and are made shareholders. Angel investors, venture capital companies, and initial public offerings (IPOs), among others, are some types of equity funding.
Loans: There are two types of loans businesses can take to fund their businesses: short-term and long-term. a) Short-term loans – For small firms, short-term loans are simpler to get and are taken out for a shorter duration, typically less than two years. They have a lower loan amount and a higher interest rate than long-term loans. b) Long-term loans – are those that are taken out for a long period of time, often three to 30 years. They demand monthly or quarterly payments and putting up company assets such as tangible property for security.
Grants: These are financial gifts made to a person or organisation, typically by the government, in order to support an idea or a project. Grants are an excellent financing alternative since they are essentially free money to finance your business. They are typically competitive and lower in size than loans.
In summary, there are many different choices and options to choose from when it comes to financing a business, but it is ideal to choose one that suits your goals for and the state of your company.
If you require advice and support on how to determine which choice from the list above best meets your company's objectives, please email our finance experts at enquiries@ovacgroup.com