How to Secure Funding for Startups and Established Companies?

Businesses require a constant supply of cash to preclude operations from grinding to a halt. Despite remarkable sales, earmarked resources might prove to be insufficient, and as a result, you will have to hinge on external factors to borrow money. The way start-ups are funded is not exactly the same as the way established companies are funded.

Raising money for start-ups can be a bit more challenging due to a lack of evidence to prove business profitability. A business plan is required, which must throw light on projected profits. Further, direct lenders and investors have their own methods to take stock of your overall business condition. The sounder financial condition it reflects, the greater the chances of earning money.

This blog discusses some of the external funding sources to raise money for your start-up or an established company:

• Family and friends

Family and friends come in handy when you need a small amount of money. Start-ups that require very little investment do not have to rely on guaranteed start-up business loans with no credit check. With the help of friends and family, you can avoid paying hefty interest. It does not insinuate that you should not pay interest to them.

Bear in mind that the money they lend you will have lost its current value, so out of courtesy, you should pay back some interest along with the principal amount. Discuss everything related to interest and the repayment length beforehand to avoid confusion and arguments in the future.

However, it is worth noting that friends and family can only provide you with small funding. If you need a large amount of money, you will need to rely on a business loan.

• A business loan

When the help from friends and family does not feel sufficient, you will need to ask direct lenders and banking institutions for money. Banks are known for providing long-term loans at affordable interest rates as long as your credit score is excellent. You can also take advantage of good relationships with your banks.

However, if your credit score is less than perfect, banks will be reluctant to sign off on your application. If they approve, they will charge very high interest rates. Bad credit business loans are generally available from direct lenders. Not only will they charge exorbitant interest rates, but they will also restrict the size of borrowing money. In order to secure funding for your start-up, you will have to submit a business plan.

It must have all the details about your business, as it can make it or break it. Your bank or lender would like to know projected profits. Make sure that your business plan reflects a strong financial forecast because it has a strong bearing on their lending decisions.

• Share capital

Share capital is the best way to raise a large amount of money. It is raised by the sale of shares to shareholders. Selling shares gives your purchasers part ownership of the business, and therefore, they are involved in the decision-making process.

Share capital is a source of permanent capital, as shareholders cannot get it refunded. They can sell it to someone else, though. Shareholders receive dividends when a business has made enough profits to cover all costs. This means that dividends are not paid out to shareholders every year.

However, share capital is subject to a few drawbacks:

• There is always a threat to lose control over management. Shares are purchased and sold quickly and publicly. If somebody quickly attains a large number of shares and wins the confidence vote, the management will be changed. You should always be careful while raising funds through share capital. Make sure that you hold more than 50% of the shares.
• Another risk is that you will not be retaining full ownership of the business. Shareholders take part in ownership, and they are also responsible for decision-making. It is necessary to have the support of a majority to implement a decision.

Raising funds through share capital is possible when you have a limited liability company. Whether you have just started your business or an established business, you can use this method to raise funds provided you meet the conditions.

• Venture capital

Venture capitalists are known for funding start-ups in exchange for a share in ownership. This means that they will be involved in the decision-making process, and part of the profits will be shared with them. Venture capitalists will carefully assess your business plan to ensure the business they are investing in is profitable.

Raising money from venture capitalists could be a good idea as long as you do not have any problem with losing some part of profits and ownership. Remember that you will not be able to make any decisions for your business solely. You will have to be in tune with venture capitalists to run your business. Venture capital is normally suitable for large funding sources.

• Bad credit loans

Not every business needs to rely on large funding sources, and therefore, venture capital, share capital, and long-term business loans are not ideal options for them. Sometimes, you need a small amount of money to borrow, even if you are an established company. In that case, you may seek to take out bad credit loans with no credit checks. These loans are approved on the same day. An instant injection of cash basically helps during emergencies. Start-ups often rely on these loans if they need a small sum of money.

Approval does not take as much time as any other loan because it excludes the formality of paperwork and business plan submission.

• Crowdfunding

Crowdfunding is another way to secure funds, whether you are a new business or an established company. There are many crowdfunding websites where a large pool of people club their money and lend it to several kinds of businesses regardless of their sizes. Crowdfunding is generally ideal for mid-term loans that do not last more than five years.

It is not a kind of investment. It is rather a type of lending. Some crowdfunders, however, may look forward to investing in your business in exchange for a portion of profits. You will be required to pay back a desired sum of money as interest along with the borrowing amount. Crowdfunding includes the following advantages:

• Raising money through crowdfunding is quick. If you struggle to have people invest in your business, you should immediately understand that your business idea is shallow.
• Crowdfunding will let you access money even if you have been refused other alternatives.

However, crowdfunding proves to be a successful attempt only when your business idea is appealing.

The final statement

There are various types of funding sources to help start-ups and established companies. Make sure you carefully understand how they work and the associated drawbacks.