Funding for Small Businesses: A Look Quick at Some Sources of Funding
There are many things every business, including small businesses need for growth and survival. One of such is financial support. Money is needed to pay workers, purchase materials for work, and settle financial obligations, among others. However, one of the challenges business owners have battled with for long has to do with getting funding.
In this article, I provide a brief highlight of some of the avenues small business owners can take advantage of to give their businesses the financial backing that is needed.
Ploughed-back profit
This describes the reinvestment of profits made. In periods where your business makes profit and there is not a great demand for payments or outflows, especially for payment of earnings to investors and shareholders, the whole profit or a part of it could be reinvested, considering the cash needs of the business.
Bank loans
Another area is loans from banks and other financial institutions. These financial support providers usually give support to creditworthy businesses. Therefore as a business, do well to provide evidence of such especially credit rating documents, financial statements, among others. Interest charges could be negotiated sometimes.
Personal investment
In some cases, the business owner(s) could also invest more capital into the business. Current investors or owners could be encouraged with evidence of future business prospect to make further capital injections.
Venture capitalists
These are financial support providers who advance such support and require a percentage interest in the business they have so invested. Thus, they do not give funding for free but will demand that they have say a 10% interest in the business. They usually invest in businesses with high growth potential, have a say in the future of the business and its running.
Angel investors
These are similar to venture capitalists. They are interested in small and growing business becoming more thriving and flourishing. Apart from the funds, they also contribute business advice and offer business support sometimes. They differ from venture capitalists much in terms of influence. Angel investors exert little or no influence though they require some equity in the business they have invested in but venture capitalists often have a say in the future and the running of the business.
There are indeed a plethora of opportunities to benefit from but as a business seeking financial support, you must rightly position yourself. The following can make your business a good candidate if given due attention:
- Have a good credit worthiness record
- Produce true and fair financial statements that conform to international standards
- Have evidence of future prospects