7 ways to Finance your Business the right way.
Starting a business is always tough. One has to check a lot of boxes off in order to get there. The most important and difficult box to check off is FINANCING. How to fund and finance your business is the biggest question that comes to your mind when you think about starting your business. Even Jeff Bezos needs to finance his business from time-to-time, in order to meet the company’s financial goals.
Thinking of ways to finance your business could be a daunting task but we have got you covered. We have compiled a list of 7 ways to finance your business so that you can focus on growing your business and not worry about financing it.
1. Owner’s Equity – Equity or Preference Share
Owner’s equity is a win-win situation for the company’s owner as well as the investor. The greatest benefit of owner’s equity is that you don’t need to repay the cash. If your business enters liquidation, your investor or financial backers are not creditors. They are the fractional proprietors in your organization and, hence, their invested capital remains invested alongside your organization. If the company makes profits, even your investor gets a share of the total profits.
2. Unsecured Loan – Family and Friends
Getting financial backing from your friends and family is the best way to commence your business as you won’t be pressurized for the repayment dates. A relative who knows and trusts you might offer you a similar credit at much lower interest rates. Pick an interest rate that is reasonable yet at the same time gives your relative a bonus to lend the money.
3. Term Loan/Working Capital Loan – Financial Institutions
A term loan is a loan which is generally for a longer tenure of 3 years and above. This may be availed for long-term capital expenditure requirements such as the purchase of assets, machinery, deposits etc. A working capital loan aids a business in dealing with short-term liabilities so its long-term objectives can be centered around and accomplished per the needs. Working capital loans are normally simply appropriate to small and medium enterprises and the loan period is for almost 6 months to 1 year which can be availed against primary security: stock or book debts/receivables.
4. Third-Party Investment – Angel Equity:
Angel investors are high-net-worth HNI individuals who invest in startup ventures in hopes of earning profits. Angel investors sometimes join together in small groups to collectively invest in early-stage ventures. Angel equity is a good way to get capital for your business.
5. Unsecured Loan – Financial Institutions:
Opting for unsecured loans from financial institutions is better because of quicker and hassle-free processing of funds without the risk of losing the collateral making it easy for the borrower. So if in case you plan to commence a business, do check for unsecured lending from NBFC’s and other financial institutions which normally gives amounts based on various parameters such as credit score, banking transaction, GST transaction etc.
6. Top-up on Existing Loans – Personal, Housing, etc.:
The significant advantage of the top-up loan is that it can be availed at low-interest rates when compared with an individual or gold credit. The normal personal loan interest rates fluctuate between 11-24%, however for a top-up loan, the interest rates are equivalent to home loan interest rates.
7. Government Grants:
A government grant is one the best ways to get your business funded. Unlike a loan, you don’t need to repay the grant offered by the government. Small companies and new businesses can think that it is hard to finance their business operations but getting a grant would ease all of their problems. In case of the grant is accessible, the organization would secure their position and might grow eventually without mortgaging its future. All the state governments are providing with various grants & subsidies to support MSME, as that in turn creates a lot of jobs in the state. The central government also has a lot of schemes such as interest subsidy and capital subsidy. One can take maximum advantage of the schemes.
With these financing avenues to choose from at your disposal, you can streamline your business funding and get the operations up and running. Making the decision on how to finance your business can be made after taking several factors into consideration like the amount of funding required, the situation of the credit system, debt calculations and other such factors.
If you are planning to approach the loan options then consider calculating the credit score to make sure about your available options.
Considering your return on investment will also be recommended thus making sure that you are well aware of what you are getting involved with. We, at Ratnaafin are accessible to you and providing financial solutions and guidance at every step, so that you can focus on your project.
Let us know your favorable option of financing your business in the comment section.