A Simple Guide to Funding a Small Business

You have placed yourself perfectly in case your business has customers and is moving in the proper direction. However, you cannot halt at the present position in case you want to keep growing. Continual growth has to be part of the business growth map.

It is a fact that you needed access to funds while starting your business. This likewise applies to the development phase of the business. Every company must make efforts to expand and for this it needs capital.

In This Article

Guide to Funding a Small Business

While starting your company you required only the startup expenses. However, it is imperative to evaluate your present situation while moving forward. As a business owner, you ought to understand why you are in need of additional financing, and also when you ought to look for the additional funding.

We have mentioned the 5 indications to know when additional funding is needed by your business.

1. Cash flow management

Cash happens to be the king. It is imperative to manage the flow of cash so as to succeed as an entrepreneur. This problem is common for a lot of companies. Many companies need to deal with the negative flow of cash because of inadequate planning. And, on many occasions, these new companies are required to spend more money than what they have at their disposal.

This is typically the case for a business that wants to store its inventory during the year at particular times. Other companies might be needed to deal with issues of negative cash flow since they encounter different seasonal fluctuations or business cycles. This might be applicable to a business that happens to be busier at some particular times of the year.

Irrespective of the reason, your company can be affected significantly because of negative cash flow, and this is really a matter of concern. Many folks use cash flow for ascertaining the business viability. Business funding can be used for helping you to manage cash flow properly, particularly at the time of the growth periods.

It is essential to manage cash flow effectively so as to keep developing.

2. Expansion or growth

Of course, we are talking about funding your company while it is growing. So we will discuss recognizing the requirements of funding for some particular expansion projects. It is the nature of the business which will determine the expansion type. By the term expansion we can imply various things to different business types. Below we have given some examples of the particular expansion projects which are business might go through:

• renovating already existing space

• extra business locations or new commercial area

• marketing

• employing more staff

• providing new services or products

• expanding advertising techniques

It will be a sensible option to go for business financing to provide funds to expansion projects since these projects have the ability to either make or break the growth potential. Consequently, it will be prudent to fund them by planning wisely.

3. Cushion

Effectual planning happens to be the secret of a successful business. It will be imperative for you to think regarding cushioning for risk as an integral part of the planning strategies.

According to some individuals, any business owner ought to have a cash cushion of 6 months’ worth of the operating costs. Companies experience various cyclical modifications and therefore this will be a fantastic idea. You should have a cushion in case it happens to your company.

Other reasons for having a cushion are going to help you in various ways which we have mentioned below.

• Planning for the tough times: It is natural for any business to go through difficult times. A cushion will help you to become prepared for those difficult times by putting cash aside.

• Shopping for bargains: In case you are operating any business where it is imperative for you to go shopping for inventory, you can use the money set aside for bargain hunt for inventory as well as equipment in some cases. Over the long-term, this helps you save money.

• Expanding your business: Your business can be grown essentially from the money that has been financed by you to be used for a cushion. While putting aside money for usage as a cushion, you will be able to reinvest for your business growth. Moreover, that money can be used for other items by you for prospering your business.

4. Hiring

Although employing new workers for your business might appear to be rather daunting, you cannot avoid it in the long run. As a result, you need to calculate how much can be afforded by you for paying them. Make it a point to review your budgets from scratch. Although some companies curtail from some specific areas, others might go for funding initially for getting the job done.

Companies have selected to use business funding for financing the payroll of a new hire, and therefore, this might be also an option for you. Hiring will be particularly relevant when additional staff is required by you for the development of the business.

5. Innovation

Being a business owner, it will be imperative for you to be creative so as to stay ahead of the others. That idea is more predominant with the technology of today. You need to stay in the competition along with larger businesses being a small business yourself.

Innovation might be of prime importance as an integral part of the growth pattern of your business. This might be in terms of development and research or the production of new services or products depending on the business of yours.

You must understand the requirement of innovation as a crucial factor for development. This might be an indication for additional funding in case you have arrived at this point in your development plans. It will be sensible to invest in your business innovation in the business environment of the present day.

We have figured out 5 key symptoms which will enable you to understand when business funding will be required by you. Make it a point to review additional funding options for your business in case any of these indications apply to the business of yours.

Make it a point to research all the options available to you. Below, we have highlighted several options for business funding which will help you with your research:

• Conventional bank loans

• Lines of credit

• Alternative lenders for small businesses

• Angel investors

• Crowdfunding

• Loans generated by the SBA

Research all types of funding options for funding your business at the time of the growth period. Doing this is really important. It is essential to comprehend the most effective funding options available out there. Try to comprehend that the loan has to be paid back by you eventually, and it is your profit which will help you to do so.

Being the business owner, you’re responsible for this. So, we will take a glimpse of what we have learned so far.

Firstly, make it a point to identify the 5 indications that will help you to know when additional funding will be required for your prospering business. Try to figure out whether they match the criteria which have been listed.

Secondly, it will be imperative to comprehend what kind of funding will be ideal for your small business. It is important to access the capital so as to develop during this fascinating time in the business.

Importance of funding your business

Fundraising will be required by any established startup for serving its business objective. In fact, fundraising will be important together with the funding process for the startups. While 2 of these components combine together, they will be able to help in the development of any startup to a great extent.

It is important for any investor to plan the actions according to the business goals whenever he begins to fund for any startup. Nevertheless, it is possible for the funding plans to differ according to the types of outcomes predicted by the startup.

Fundraising as well as funding help in the development of any startup in this contemporary business scenario. In fact, you will come across a number of financial tasks of a company that have to be managed and lined up.

Nevertheless, it is possible to successfully attain the management of tasks once the funds have been allocated properly. In the same manner in the event of fundraising, the funds have to be raised for achieving a startup’s defined economic agenda.

Apart from this, below we have mentioned some reasons denoting the significance of fundraising and funding for startups:

Satisfying a startup’s financial objective

There are some financial business targets for every single startup that have to be achieved. Therefore, one should seek funding for attaining the same. It is important for this funding procedure to happen in the proper time so that it is easy to plan monetary tasks in a simple manner.

Get rid of glitches from success path

It is important for every single startup to make sure that their development is free of any obstacle. One can assure this by making use of fundraising and funding programs. These programs which are intended to manage and raise the funds of any particular startup ought to be monitored regularly.

These funding and fundraising activities should get rid of all the economic obstructions from the startups’ path of success.

Complying with the high level of competition and business standards

At present, the competition levels have increased in the market. Therefore, it is important that the standards of the business world are properly matched. Consequently, one has to go for funding as well as fundraising activities so as to enhance the business standards. Fundraising and receiving funds collectively contribute to business development by supporting start-ups at the most competitive level in the corporate world.

As a result, it is important to use fundraising and funding activities for stabilizing the business of the startups.

Different Ways to fund your business

The owner would have to search for funds to support him to expand or to grow during a tough period throughout the lifecycle of almost every business out there. Therefore it is hardly a brief or trivial matter to decide how to fund a company. Of course, a comprehensive discussion would be the best thing right here.

Firstly, you will come across a couple of ways for funding your business externally. These happen to be equity and debt. The investor is going to receive a note for the cash once the debt is being used. This note is going to mention the repayment terms which includes interest as well as timing.

The advantage of utilizing debt is that it will be possible for you to retain your company’s ownership. However, the disadvantage is that you are expected to repay. In case you do not fulfill your obligation, the lender might be able to wind up the company under certain situations.

Next comes equity. The owner, who is using equity to finance a company, transfers the investor’s share of ownership in return for the cash of the latter. The advantage is that the investor cannot be reimbursed. The disadvantage is that the owner has to abandon part of his company. It might contribute to a lack of management of the business.

You’ll come across various sources of debt funding and equity which we will discuss below in brief.

Equity

Self-funding – Most businessmen themselves finance their businesses. For this, personal debt or savings is used by them. Otherwise, they might even generate revenues for the business by selling assets.

Family and friends – Of course, family and friends will be able to offer either debt funding or equity. While it can seem like a reasonable source initially, be cautious to sell part of your company to this party. Regrettably, businesses do not succeed. The loss of cash might lead to damaged feelings and it can also spoil friendships out there. Make sure the investors are conscious of the real dangers.

Angel investors – In most cases these people are wealthy individuals who are prepared to spend their cash in businesses. Angel investors are gradually forming investment organizations to disseminate risk and market research. Check the local angels online or chat with the chamber of commerce. Your regional chamber might know who wants to finance new businesses and concepts in your city.

Cloud funding – Many groups are available to support you and bring your proposals around the internet to investors. Typically multiple investors are going to add funds to this concept if this sort of financing happens to be successful. Be mindful that the way cloud funders can function is limited.

Partners – The usage of a collaborator may be a funding source. The partner might be an employee of the company or he might not as well. Strategic partners can align resources thus benefiting the business in the long run. A property management business might, for example, invest strategically in a property maintenance firm, because it can ultimately support the maintenance group.

Venture capital – These businesses provide financing in the early stages but typically tend to make fairly big investments to take up a large share of the business – a controlling interest on most occasions.

Crowdfunding – Being web-based projects primarily, these enable individuals having an idea, company, or project to get to numerous prospective investors by means of different platforms. It is possible for the investments to be equity, rewards, or debt-based. You will come across lots of crowdfunding performances at present, and therefore, you need to do your own research prior to entering into this field.

Debt

Small company lenders – You’ll come across many companies which like to lend cash to small companies. In fact, you will see a lot of results by searching for “small business loans” on Google. The majority of the lenders wish to secure the loan through some type of assets and it is possible for the rates to be high.

SBA loans – The Small Business Administration has got quite a few schemes, although such loans typically need an assurance that the loan will be refunded such that businesses may receive loans from conventional lenders.

Banks – Traditional banks can issue small business loans. They generally need a track record, however, and often want to ensure that loans have assets.

You’ll come across more alternatives for financing small companies which we have not covered here. Nevertheless, it is possible to secure funding with persistence and a proper business plan.

Benefits of Business Funding

Perhaps the most important benefit of being a small business owner is the opportunity to become your own boss. However, it is not that simple. Business happens to be complex as well as imperfect. It is important to know the biggest advantages of business funding so that you are able to survive in the long run.

Your business has to be profitable, useful, and also enjoyable so as to be successful. You need to know regarding all the advice, advantages, and assistance available to you so as to attain these objectives.

Most significantly, you must know about the advantages of business funding above everything else.

Advantage 1

You are ready for cash flow ups and downs. It is something experienced by every single business at any particular time. There is a possibility for you to lose your business in case you do not have appropriate funding.

In fact, the main reason why many businesses do not succeed within 5 years is because they run out of money. In your case, you should not permit this to happen. Note the long-term business funding is accomplished with short-term finance bursts.

Advantage 2

Emergences can be handled by you. Your business will definitely encounter misfortune and disaster at some time or the other. This might consist of the loss of your greatest customer, a severe storm, or even the cybercriminals.

In fact, these types of events can happen to a business all of a sudden. However, you can be prepared for everything in case you have an emergency loan for your business.

Advantage 3

You’ll be able to use new opportunities to your advantage. Your business is failing in case it is not growing. In most cases growth needs to expand the product line of yours, find out new clients, and also locate a fresh revenue source. Many firms will first take the chain out, unscrew the locks and disconnect the warning device once opportunity knocks.

The opportunity will go away by that time. Although excuses can be many, opportunities aren’t. You can grasp every good opportunity to take your enterprise to the next level when your first loan happens to be in place already.

You can win a contest like that. You will be the initial loser in case you come in second.

Advantage 4

You can always make certain that you make the payroll. This will inform your employees regarding the fact that your company is stable. Besides, by paying your employees late you will not get into trouble with the state or the IRS.

As a matter of fact, the majority of the businesses do not know that it is not legitimate to make late payments to your workers and you might face a lot of problems in case it happens on a regular basis.

Moreover, in case you make late payments to your employees they can become unproductive in the long run. They might not treat the customers properly and can also make mistakes which can affect the quality of the product.

The most significant asset of your business happens to be your people. You’ll be able to obtain their devotion with quick business financing in the long run.

Advantage 5

There is no need to put your own assets into your business. It is quite difficult to separate business credit history from personal credit history. Let this problem not become even more complicated by mixing up finances too. The bank is going to make their financing decision by using your individual credit score once you need to get hold of an instant business loan.

You can only be qualified for a credit line of home equity, which would require you to place your own house on the line as security. This can be avoided provided you do have a line of credit for your business.

It allows you to use a continuous cash supply to avoid dipping into your own money for financing your company.

Advantage 6

You don’t get diverted from your job to pursue financing because you’ve been diligent from the outset. If you’re not currently preparing your company, you could always forget about tomorrow.

Being the owner of a small business, you should always emphasize on those tasks relating to your survival and growth. It will be important for you to delegate the rest.

This is almost difficult to do if your life is at stake because you’re already running out of cash. This implies that you are always focusing on financing and you are always panicking out there. It will be possible for you to concentrate on your business once you are aware of the fact that your funding is already in line.

Advantage 7

It will be a good idea to obtain instantaneous business funding while the times are good. The worst time to look for a business loan will be when you happen to be in distress. Banks will not like to provide financing on a normal day to small businesses.

It has been shown by research that the notable banks fund approximately 23% of the small business loan applications received by them. They have many regulations regarding credit scores, financial statements, and collateral which makes it very difficult for the majority of the small companies to qualify.

Your chances will become slimmer in case you include your financial distress to this equation. It will be possible to get lesser fees, easier terms as well as quicker response by opting for an alternative funding company. Do so now such that you can respond to the challenge when the need for fast company cash arises.

It might seem difficult for you to fund your small business, but if you consider everything that has been mentioned above, even this process is going to become smooth for you.