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Financing alternatives
These are just a few of the more conventional methods for a young company to obtain capital, though the possibilities are numerous:
Debt financing sources
Debt relates to money lent to your business that will eventually be repaid after an agreed period. While it is used within your business you will be required to pay an amount of interest to the lender. Generally the cost of debt finance is lower than equity because the risk is technically less.
Banks
The first source of funds that typically comes to mind when borrowing money is a bank. After all, that’s why they’re in business. Every business will need a bank account and it will therefore have a relationship with a bank. Banks typically lend to businesses on a secured basis, using property, equipment, stock or debtors. The more liquid and readily saleable the assets you have to offer as security, the more acceptable they are likely to be to a banker. Loans from a bank may take several forms such as overdrafts, short-term loans and term loans.
Equity financing sources
Equity financing usually means selling a portion of your business. This can be accomplished in a number of ways including the sale of ordinary or preference shares. Equity sales are usually carefully tailored to meet the needs of both the company and the investor.
Grants
Grants can provide much needed business support and sometimes expertise to help your business grow. Several organisations and government departments offer grants to start-ups and growing businesses, but competition for this type of funding can be fierce. Armstrong Watson can help you look at all the available sources of income.