2020 was a tough year for business owners. Those who received some sort of business funding will tell you that this was a real life-saver to their business and got them through the worst of it but also helped them grow their businesses.
Many business owners only start looking into funding options when their businesses are failing and often that results in a decreased affordability and closes the opportunity to receive funding when they need it most. A growth mindset can go a long way in obtaining business funding at the right time and if used correctly, can allow your business to grow in various ways.
Ways that you can use business funding:
- Use business funding to purchase stock or much-needed equipment
- To grow your brand awareness and customer reach
- To pay for expenses in tough times or quiet weeks or months
- To hire more employees
- To expand into new areas or markets
- To purchase a traditional card machine or point of sale solution
It’s important to assess your goals and the risks involved before taking on funding for higher risk objectives like hiring more staff which is an ongoing fixed expense and they may not rise up to your expectations or achieve what you hope to achieve or buying too much inventory if that item does not yet have a sales track record. The interest will have to be re-paid so the initial saving on a large purchase might end up costing a lot in interest in the long run. That’s not to say it won’t work out, just assess the risks carefully and make calculated decisions.
Spending your funding on marketing your business is something that we highly recommend as the investment is in most cases guaranteed to pay off itself and will be fairly low risk.
5 Ways to get business funding:
1. An overdraft facility or bank loan
Your bank should be able to provide you with an overdraft facility/loan based on the performance of your current business account but often that may require all sorts of paperwork, guarantees, and surety against assets. The best time to secure an overdraft is when the bank offers one to you i.e. when things are going well, rather than applying for an overdraft when you really need one as this can affect your interest rates and the affordability component of the overdraft if taken out when your business is in trouble already. Although interest rates are high, repayment terms are often affordable and money is easily deposited into the overdraft as you receive funds into your bank account so this is a great solution for most business owners to simply keep in place at all times as its flexibility can be great for managing day to day cashflow variances. The downside though is that an un-used overdraft facility may be reduced at any time so may not be there when you need it most and interest rates may fluctuate making it difficult to calculate borrowing costs accurately.
2. Getting a cash advance
The great advantage of using one of these institutions is that they base their funding on your existing credit card or business turnover and offer flexible repayment terms. Their funding is available within 24-48 hours and they don’t ask for a ton of paperwork like many other lenders. If you repay your loan and then need to apply again, their process is fairly simple and hassle-free.
3. Friends and family
Asking friends and family for a business loan or to invest in your business may be one of the easiest and possibly the most affordable ways to get funding as they may charge you very little interest or none at all. It does however come with a lot of strings and can be stressful if your friend or family member suddenly needs their capital returned at inconvenient times. The benefit of course is that friends and family will invest in you more than what they are investing in your business or idea and that level of trust will go a long way toward you believing in yourself and achieving your goals.
What is crowdfunding? “Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet.” There are many websites nowadays that offer crowdfunding options. These platforms allow you to simply post your idea or concept and ask people to fund it.
Crowdfunding can be a great way to get the funds you need but it may also force you to give some of your business shares away in exchange for funding. The great side of it though is pitching your idea to many people at once and this could show you the potential your idea really has based on the number of people who invest or believe in your concept. Be careful to have some patents in place if you’re launching a new concept as it can be just as easy for the crowd to steal your million-dollar ideas.
5. Getting an Investor
There are two types of investors. Loan-based investors who charge interest on the funding they provide to you and share-based investors who take a portion of shares in exchange for profit sharing. Silent investors will not participate in the day-to-day operations of the business and will simply put up the cash to help you and will rely on regular financial reports to see that their funds are in good hands. Active investors will become part of your business and may implement their ideas and make decisions in your business so it’s important to consider the effect on your business when you chose to take on an investor.
Whatever your business needs and goals are, financing could be the right thing, when used at the right time to take your business to the next level.