Types of funding for businesses
Lack of funding is one of the reasons many businesses fail. Lack of funding also discourages many potential entrepreneurs from starting a business. These are some sources to acquire funding for your business.
- Personal Savings
- Loans from family, friends or close associates
- Bank loans or credit cards
- Loans from government organisations focussing on assisting small businesses
- Get a partner for your business
- Angel funding (wealthy individuals who will provide funding in exchange for an equity share in the business)
- Venture capital (provide significant amounts of funding in exchange for an equity share in the business, but will only consider businesses who can ensure a good return on their investment)
Revenue and Cash flow
Whenever businesses apply for credit, ensure that your revenue and cash flow can cover the instalment. Also budget for a potential interest rate increase to avoid ending up in financial difficulty when you cannot afford the increased instalment.
Short-term debt versus Long-term debt
Short-term debt refers to debt which is due within one year and will reflect as current liabilities on a balance sheet. Short-term debt is typically used for short-term funding needs i.e. buying new computers or when there is a timing delay on your cash inflows. Short-term debt includes credit cards and overdrafts. Long-term debt refers to financing or leasing agreements which will be payable over the longer term i.e. new premises or expansion projects. Long-term funding will reflect as non-current liabilities on a balance sheet.
Negotiate better credit terms
Negotiating better credit terms i.e. lower interest rates and / or longer repayment periods with your creditors can have a significant positive impact on your cash flow. Budget for your creditor payments to ensure you can pay your creditors when it is due and you don’t pay late. Maintaining a good credit record with your creditors will count in your favour when negotiating for better terms.