Business Finance Write For Us – Although self-financing and bank financing continue to be fundamental pillars for obtaining resources, numerous alternatives have now emerged that provide greater flexibility and better conditions in general for small and medium-sized companies.
When dealing with the issue of business financing, one can use funds from the company’s partners; or, if you can, resort to external funding, either via loans, issuance of bonds, or some other instrument that is useful to obtain the capital you need.
Different types of business finance
FFF
The well-known “Friends, Family and Fools” is, normally, the first source of financing that every company turns to in its beginnings. This form of funding uses the savings of the entrepreneur and the help of family and friends who trust the business project they are working on.
Seed capital
Also known as seed financing, it is one in which company shares are offered to investors so that they acquire a part of the business in exchange for capital. Apart from the FFF, this financing can come from Angel investors and crowdfunding.
Due to being a very early stage in the company, it is considered an investment with many risks since the company is usually not working at 100%, nor does it have enough metrics on the development of the business.
public funds
Once the company stops being an idea and becomes a reality, we have other sources of financing, such as public funds.
There are mainly two types: non-refundable grants and public loans. In the second case, the capital must be repaid, but under more advantageous conditions if we compare it with loans from private institutions.
Business angels
An “angel” investor is a natural or legal person who offers capital and knowledge to a company or startup through financing. In exchange, you will receive a profit in the future, which usually translates into a shareholding in the company. Angel investments are normally the second financing round for startups with high growth potential.
Bank financing
There are different bank financing instruments that a company can resort to have the necessary capital flow in its daily operations. However, to receive this type of loan, a company must meet many requirements and conditions before becoming a financing creditor and offer guarantees that guarantee the amount.
Finally, the interest rate on this type of loan is high, so it is advisable to think carefully if a company wants to assume this type of financing.
venture capital
Venture capital financing, or venture capital, is provided by private funds to companies or ventures with high growth potential. These funds manage and contribute money from individuals, companies, or institutions, investing in innovative companies or startups with great possibilities to be successful.
In exchange for this financing, venture capital funds receive a direct shareholding in the company, which is usually 20-30% of the total, in addition to acquiring voting rights in relevant company decisions and a position on the board of directors. Administration.
Once the success of the projects has been achieved, the Venture Capital Companies withdraw their investment by selling their shares to other interested members or on the Stock Market if the case arises, obtaining the high returns sought from the beginning.
Private Equity
Another financing possibility for companies with a certain size, traction, and growth potential is through private capital sources, also known as private equity. Unlike venture capital, private equity funds tend to invest in all types of companies, with larger amounts and acquiring a greater percentage of the companies where they invest.
In addition, these funds tend to invest in a smaller number of companies since they take more into account the risk they assume with each of them while they invest large amounts of capital. Therefore, they also expect a higher return on investment than VCs.
Leasing
To finance the purchase of machinery or any company asset, such as vans, companies usually do so via leasing or financial leasing.
This rental contract incorporates a purchase option in favor of the lessee to be exercised at the end of the agreement, which, due to its characteristics, there is no doubt that it will be exercised, normally because the purchase option amount is much lower. The value of the asset at that time. This way, the company can acquire an investment and pay it in installments comfortably and efficiently.
Factoring or invoice discount
For those companies that sell on credit, there are much more convenient financing options for their needs. The problem is that companies that sell for 30, 60, 90, or more days require capital to continue operating or growing; however, they do not have the necessary liquidity due to their accounts receivable.
With the discount or advance of invoices or factoring, for example, a company can have credit immediately in addition to reducing the risk of non-payment of its customers. Some financial institutions perform traditional factoring services. However, with the advent of online financial services platforms, the processes have been streamlined, and the costs of this type of operation have been reduced, making it a highly recommended option for small and medium-sized companies.
You can discover all the advantages and benefits of online factoring at Invoicedo.
Once the financing sources and the states in which one or the other is more appropriate have been classified and defined, the next thing we must do is find out the cost of each alternative or the set of several of them and compare it with the performance that is you will get from the new project.
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