“Business? It is quite simple. It is other people’s money” – Alexander Dumas.
One situation that gives entrepreneurs sleepless nights seems to be the issue of raising funds for their business. Sometimes, an entrepreneur may have viable ideas, expansion plan and other projects that will increase the profitability of his/her business but lack of funds may be a major set back for him/her.
Imagine you were promised a million dollars as a loan to finance your business, i am sure you will tabulate how this money will be of great leverage to you. I am about to share with you over seven sources of funds you can exploit.
Each of these sources has its own strength and weakness, its own procedure and process. Having said enough, let’s proceed with the main issue on board.
Seven Source of Funds You Can Access To Finance Your Business.
1) Family and friends: This is always the first point of call for any entrepreneur seeking for fund. It is so because family and friends will always be willing to help those who they have personal relationship with. Family and friends will always give you money blindly if you are trustworthy.
2) Private individual investors (Angels): Approaching private investors otherwise known as angels is an option you might want to consider when raising fund to finance your business. Angels are rich individuals that use their wealth to encourage young entrepreneurs with in their community. If you have an angel in your community, you can consider taking your business idea to them. Example of such is Bill W. Gates encouraging young entrepreneurs in Seattle.
3) Private Investment companies (Venture capitalist): Venture capitalists are also a channel through which you can access funds for your business. They are professional investors who are always there to help you with funds to finance your business provided your business idea is very feasible. Venture capitalists are very tough when it comes to granting funds to entrepreneurs. They don’t give loan for an interest; they prefer to provide you the funds you need in exchange for a stake in your business. They come in as partners. Before approaching a venture capitalist, bear in mind that they cut a tough deal. They will always ask for a controlling interest in your business, about 35% – 60% equity stake.
4) Commercial Banks: I don’t need to explain much on this because it is known by all that commercial banks are a major source of fund for entrepreneurs. The only difference is they might cut a high interest rate and ask for collateral.
5) Government Grants: In some states and countries of the world, the government of that region maps out a certain amount of money to encourage the development of small and medium scale enterprises. This money is given out as grants to those it may concern. Governments grants can be a source of fund for you if you are a citizen of that region and you are able to fulfill the stipulated requirements.
6) Equipment Finance companies: Equipment finance companies are not direct sources of funds. They will not finance your business directly. Instead, they will provide the equipments required to start and run your business effectively. Equipments can be made available to you either on a lease or hire purchase agreement.
7) Public Funds: This source of fund can only be accessed through investment bankers. If your business has grown to a very substantial size and you are seeking funds to expand or diversify, then selling shares to the public might be the next option for you. But a major draw back to accessing this source of fund is that your company will now be a publicly traded company and you stand a chance of losing control of your company if anything goes wrong.
Lastly, there is also a type of financing called Private placement. This is just like seeking public fund but in this case, the shared are not announced publicly. Only high net worth individuals are contacted and given the opportunity to provide the funds in return for equity. In private placement, you as the entrepreneur and owner of the company still have control of the company. Also the company still remains a privately held company.
I feel i should bring to your notice another type of funding called Bootstrap Financing. This is unlike the other source of external funding. Infact, i prefer to call this type of funding “Internal funding.” This type of funding can be applied when other source of funds have been exhausted. Bootstrap financing is the process of financing your business with internally generated revenue. You can apply this type of financing to your business by keeping your expenses low, keeping your eye on the cash flow, producing on demand, reducing your credit limit to customers, securing credit supply from your raw materials suppliers and so on.
In conclusion, I want to state categorically that lack of funds should not be an obstacle to achieving your dream of building a successful business. You can utilize one or more avenues of funds listed in this article to finance your business.
Till I come your way again, keep the capitalist flag flying. Good Luck.