A small business generally requires limited revenue, but funds are the basic necessity of every business and can be very helpful during a rough patch. Your business needs proper research and plan to ensure maximum success. Starting with a flexible finance strategy makes business growth easy. Investors, financial institutions, and banks offer a wide range of financial help for small businesses. You can put together the initial investment for new businesses and funds required for the betterment of an already established small business. Once you know the figures for funding your small business it will be very convenient for you. Here are 5 ways that can be used to fund a small business.
- The Factoring Method
This method is mostly used by businesses with poor credit. You can sell your receivables to get instant cash, but the sale is done on a discount rate. It means you will not get full price and this method is used by certain industries and does not apply to every small business. To make it a more practical and feasible funding option many small businesses offer their receivables for bidding. Banks and other finance supporters act as lenders in this process. Once the receivables are sold in a bundle it will guarantee more funds. You can consider this factor if you have a small business with receivable accounts. This technique is more common in the apparel business. This is a liability free funding system and the invoice remains the main asset. You also have the freedom to decide the factor period. It is better to consult a specialized person before sending your invoices for a bid. There are three parties involved in this procedure one is the business owner, second the factor, and third the customer. All the sources of funding for small businesses are flexible and create room for business development.
- Microloan Schemes
This loaning scheme is very helpful for small businesses and the main purpose of this is to create economic opportunities for individuals. Institutions are involved in granting this loan and people who have no access to bank loans are encouraged to benefit from this scheme to improve or start their small business. The interest rate on these loans starts once the loan has matured. Microlending or loaning is more popular in third world countries. Collateral is not involved in this loaning system; therefore, the recovery of defaults is almost zero. In some countries, microloans are run by individuals. The application process is kept very simple and instant cash is guaranteed.
- Venture Capitalist Fund
Investors who offer funds as venture capitalists solely focus on startups businesses. Small businesses that are on the verge of shutting down and need quick cash access sometimes have to compromise to save their business. In exchange for the funds, the investors look for equal equity in the business. Before an agreement is signed it is beneficial for both parties to know who will have more power in controlling the business. Some investors only target an equal share while others want to run the business according to their needs. If the business does not make a profit, then the investors can sell their shares to recover their loss.
- Personal Financing
As a borrower, many small business owners are afraid to apply for a loan. This happens when they know their current sale rate will not be able to fulfill the interest rate of the loan. Using your savings can save you from all the hustle but there is no going back if the business is unsuccessful. After scrutinizing all the ups and downs of your business you can also ask your friends and family members for financial support.
- NGO Funds
Many non-governmental organizations fund small businesses and give them a chance to experiment with their business ideas. This is a very popular funding way in developing countries. They want to empower individuals to use their skills and earn money. They utilize these funds in training them first and then some part of it is used in funding their business. The NGO administration keeps a check on the business to see if they are putting in enough effort to make the business. Some NGOs take a yearly cut out of the total income, these funds are used to support other small businesses. Some organizations offer financial support for their contestants in return for entering their business contests also.
The Final World
Small businesses have access to limited funds in case they want to improve or expand their business. To meet financial needs, they have to look for a support system. Banks, investors, NGOs and other financial lenders are there to support these small businesses. These schemes are designed to entertain already established businesses and new businesses equally. The lenders do not demand collateral that makes it a very feasible funding option for small businesses. The interest rate is quite low for such loans and in most cases, the lender does not have a right to claim on your business.
