Business Financing

Depending on the size and level of your business, funding is always an issue for most of us. I am not here to tell to worship money and make it your master, God forbids, but what I am trying to say is that money is essential to obtain, maintain, and build things in many aspects of our lives. Even though not everything can be purchased by money; there are things that you can only obtain by God’s grace in your life. For example; love or a good name, and etc. I mean such things, money alone cannot buy, but it is by His grace, God can make it happen for you.

Starting a business or maintaining it requires capital. Your business may not require much capital as my business, depending on its nature, but at some point we will need money to keep them running, growing, and thriving. Some people work two jobs on top of their side businesses so that they can find extra money to finance their businesses. Some occasionally conduct yard or garage sales and sell their unused or cluttered belongings to fund their businesses. Others ask family members or friends for loans instead of the bank to finance their businesses. A few use money they have saved or their investments from other places to fund their own businesses. There are some, all they need is to offer their services and money will come; basically their businesses need no capital to start their businesses and have low barriers to entry. You can also participate in various contests to win money and prizes that can help you fund your business. All of these are just a few examples of what is call bootstrap financing.

So let’s find out a few methods and sources you can use to finance your business with or without capital in advance. According to my research, these are the most common and standardize ones, even though you can also find and apply other more creative ways such as mentioned above to obtain funds and financing your own businesses.

Bootstrap Financing

Bootstrap financing is building a business with little or no capital. The entrepreneur uses imagination, creativity and hard work instead of seeking outside finance. The aim is to maintain a strict discipline on cash flow by managing costs very closely and trying to get the business up and running at cheaper and lower costs. Bootstrap financing is one of most effective and inexpensive ways to ensure the business’ positive cash flow. Bootstrapping means less money has to be borrowed and interest costs are reduced.

Bootstrap financing is designed for mainly for small businesses, or small-scale enterprises. Majority of big businesses do need lots of cash flow to fund and operate their businesses, therefore bootstrap financing is not suitable for them because it doesn’t give them enough funds they need to run their businesses successful.

Though bootstrap financing has its clearly useful especially for small businesses, it is important to know it’s downside of it. For instance the danger of being undercapitalized; there is a need to be some reasonable amount of cash available to run the business. Excessive thrift can be counterproductive and can send out the wrong signals to staff, customers and prospects alike.

It’s always important to have some financial slack or in other words a business’s savings. One, so that during rainy days or difficult period, the business will be able to survive and thrive. Second, so that when other business opportunities arise the business will be able to utilize the opportunities to grow or expand, and also make profit. Too little financial slack prevents the business from exploiting profitable investment opportunities.

Angel Investors & Venture Capitalists

Almost the same except that a venture capitalist is an investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to equities markets, while an angel investor or business angel is an investor, not counting friends and family, who either provides capital to startups or supports small companies individuals in exchange for ownership equity or convertible debt.

Another difference is that with business angels, they can decide to invest even early on when all you have got is a great idea and so invest in you rather than in your company. They have more power to decide to whom they should invest to, and how to make their offers. Venture capitalists are typically formed as limited partnerships where by the limited partners invest in the venture capital fund. In that venture capital fund there will be a fund manager, or sometimes called a general partner, and the job of the general partner is to source good deals and to invest in the ones that they think will return the most money to the limited partners.

The business angel can become the venture capitalist when decides to join some business angel groups or angel networks or investment funds where several investors combine their capital so that together they can invest in more opportunities.

Go4funding.com is one of the examples that provide a network of several business angels and venture capitalists listed on their website. Some of these angel and venture capitalists networks have no cost to use their services and some do charge for their services. Entrepreneurs looking for funding simply can register for free on Go4funding.com and post their capital needs or decide to contact directly particular business angel or venture capitalist group listed on their website.  

Going Public, Initial Public Offering (IPO)

Private owned companies decide to go public for many reasons. One of the main reasons is to raise capital and expanding. Therefore, going public is probably the only way for these companies to raise huge capital or additional funding to strengthen their capital base. The fact is that public companies can worth more than private companies. The other reason could be to diversify ownership. When the company goes public basically it means it has moved from being a privately owned and it has now become a publicly traded and owned entity.

Another reason for them to go public could be the need for the companies to become more recognizable and gain more credibility and increase their prestige. But also, because there could be a large payout, therefore some venture capitalists may use IPOs as an exit strategy, as their way of getting out of their investment in a company.

To some entrepreneurs, taking a company public is the ultimate dream and mark of success, to others it’s not. One, it makes former business owners lose control of decision making. For instance; when a private held business decides to go public, it’s done through an initial public offering (IPO). An IPO takes place, the company’s equity is changed into shares of common stock that are intended to be traded on a legitimate stock market. Once a company goes public; it has to answer to its shareholders. The major risk factor comes when a certain corporate structure changes and amendments must be brought up for shareholders to vote. Because shareholders can vote with their dollars, they have a power to bid up the company to a premium valuation or sell it to a level below its basic value. This imposes more restrictions on management and on trading.

Going public is extremely time consuming and one of the most expensive ways to finance a business, and since there is no really guarantee if these companies are going to be successful as projected, it’s the major risk they have to take. You have to eligible for there are financial requirements your company must meet. But you also have to demonstrate that your company can project significant future high growth potential. If you can prove that your business is competitive in the industry, has innovative products or services, not only profitable now, but will annually increase sales and earnings, then you have a chance at becoming a successful public company.

Grants & Loans

Normally with grants you do not need to pay back, but you must be eligible and qualified to be able to get the funds. Some Governments in some countries do not give grants and financial aid to small businesses or projects at all. They have to apply through other programs that make business grants available for small businesses. But that shouldn’t stop business owners and entrepreneurs to find ways to financing their businesses. They can get business loans. There are numerous loans programs they can apply to funding their businesses. Lots of banks and privately held institutions have loans for small and large scale businesses.

The down side of getting business loans lets say from the bank is that usually it comes with huge unfavorable annual percentage rates. Depending to whether its short or long term loan; just one loan could come up with so many fees and costs, unnecessary to the borrower, but profitable to the lender. When you apply for a business loan for example from the bank, it’s not only the interest rate expenses that get involved in procuring the loan. There are other fees you have to pay which may add up to a lot of money on your side.

But if you know it’s worth getting a loan for your business then you should go for it. Just do a research first and compare offers to make sure you are getting the best deal.

There you have it; the most common and well know ways you can use to finance your businesses today.


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