The old say goes ‘Money makes money’. Especially for businesses, the more money you have, the more money you can make. Without sufficient available working capital, it will be more difficult to grow your business as funding is needed to purchase goods, hiring, marketing, selling, etc. So, let’s explore some of the top business finance options in the article.
Begging, Borrowing or Bootstrapping?
When thinking about getting the funding to support your business, there are typically 3 main options.
Equity Funding / Begged
This is where you go out and raise funds from external parties like Venture capitalists, angel investors, family offices, family, or friends. The pro is that your business will be able to receive funding without adding any debt to your company. You may also gain some valuable business connections to help boost your business growth.
The cons are that this type of funding usually comes with some type of restrictions/conditions. This means that you will most likely lose some control of your company, being how the money will be spent, your business plan/direction, or worse you could be ousted from your own company.
Another option is to borrow funds from an external party. Being business loans, overdraft facilities, hire purchases, or invoice financing. The first 2 basically add debt into your company balance, whilst invoice finance is purely converting your accounts receivable (current assets) into cash.
The Pro of borrowing funds is that you will still have full control of your business. You can draw down funds in smaller chunks as your business needs rather than a big fund-raising round. The con is that your business is legally liable to pay back the borrowing.
Thinking of obtaining an invoice finance facility? Check out our latest blog for everything you need to know about it.
Many business owners choose to bootstrap, where they only use only what funds they have available. This means your business will have no financial pressure regarding debt repayment and will have full control of the company.
However, with limited funds, your business may not grow as fast as it could. It is also running a risk of not having sufficient cash to keep the operations running before turning a profit.
So, which one?
It depends on the stage of your business and your business goal.
If you are just starting out, getting credit facilities like business loans or invoice finance against your business will be almost impossible. You could either opt for bootstrapping initially to test out your idea. Once you have proven that there is a demand for the product, raising funds would naturally be the next step.
For businesses that have some operating history, all funding options are available to you. If you are aggressive and want to grow at a lightning speed, raising an equity funding round would be suitable. If you are looking to still have full control of your business, and be able to manage your cash flow effectively, then a credit facility will be more suitable.