methods of basics finance of business
Answers
1. Savings
Perhaps the easiest way to finance a business is to use your own money. In an ideal world, you should save money for a period of time and use this money to fund your business. This is probably the wisest, most conservative, and safest way to start a company. However, an obvious problem with this type of financing is that you are limited by the amount of money you can save.
2. Credit cards
Credit cards can provide an effective way to finance a business and to extend your cash flow. You can use them to pay suppliers and often earn discounts, certain protections, or other rewards. The downside of credit cards is that they are tied directly to your credit score.
3. Friends and family
Many entrepreneurs fund their small businesses by getting friends and family to invest in them. You can ask your friends and family to make an equity investment, in effect selling them a part of your company, or you can ask them for a business loan.
There are two problems with using friends and family as a source of business financing. The first one is that if the business fails, you risk affecting the relationship. Understandably, people are often very touchy when it comes to the possibility of losing money. You have to ask yourself if you are willing to risk your relationship for the sake of your business.
4. SBA Microloan Program
The SBA has a little-known but extremely helpful microloan program. The provide business loans for up to $50,000 to small businesses. They don’t provide loans directly; instead, they use intermediaries to fund the loans (get the list here). Many of these intermediaries also provide management assistance and may require training as a condition for a loan. The advantage of this program is that their training and assistance often increase your chances of success.
5. Accion
Accion is on of the largest microfinance and small business lending networks in the US and has offices in every state. In a sense, they are similar to an SBA Microloan. They provide startup financing and they also fund ongoing concerns. To qualify for general financing, you need to have been in business for six months and you must have sufficient cash flow to repay the debt, among other requirements. Accion also offers startup loans of up to $10,000.
6. Angel investors
Angel investors are private individuals or small groups of executives who invest in businesses, usually by making an equity purchase. They can provide money, expertise, and guidance to help start and grow a business. Getting an angel investment can be very difficult because the investor needs to see growth potential and a viable business plan with a reasonable exit strategy. An exit strategy is a liquidity event that allows the investor to recover their investment and take their profits. Most angel investments have a time horizon of three to five years.
7. Business loans and lines of credit
These are well-known products, in which a bank provides financing to run your business. In a loan, the bank gives you a set amount of money that is repaid over a period of years. A line of credit provides a revolving facility that can be used when needed and paid back on a regular basis – much like a credit card.
8. Factoring
This type of financing has been gaining popularity in recent years and is now commonplace. Factoring can provide a reliable source of funding if your company has cash flow problems because clients pay their invoices slowly. However, you can only use factoring if you work with commercial and government clients with good credit. When used correctly, the line can improve your cash flow and enable you to take on new clients. You can see how it works here and get a quote here.