Funding a business is a continuous need when starting a new business or managing an existing one. Money keeps the company afloat. You may need cash flow to maintain the daily supplies and sort cash flow challenges or expand and grow.
Which is the best way of financing your business? Reach out to SWK Holdings partners for innovative funding solutions. You can fund your business through savings, credit loans, overdrafts, and borrowing from friends and family. On the other hand, you can resort to debtor financing, equity financing, and other modern means of accessing capital.
Table of Contents
1. Internal funds
This refers to the owner’s savings from the business or other personal ventures. Internal funds increase gradually, and the company does not incur any interest or require paying back. However, using internal funding from business sales can stifle growth. Internal funds obtained from sales should help the business run and pay its operational expenses.
2. Credit from banks
A business can acquire money from a lending institution such as a bank or other institutions. You can take a loan, credit card, or overdraft. The funds borrowed attracts interest that varies from one lender to another. Debt finance gives you the freedom to repay according to your business ability. And because a partnership does not share the business profit, the entrepreneur can manage profits to service credit.
3. Equity financing
Equity financing is safer than debt financing. The business owner invites an investor to own a share of the enterprise. However, you lose business ownership and have to consult with other investors when making significant decisions.
Equity financing also includes angel investors. These are individuals with funds who have confidence in a startup business. However, it is challenging to find people who are willing to invest in a new business.
4. Factoring
A factor is a third party who can provide funds to your business. Factoring improves cash flow by keeping invoices from reliable clients. However, the factor can only risk giving you funds if your clients are corporates or government agencies.
It is also an excellent option for businesses with high gross margins. Factoring can help you leverage a seasonal business opportunity or take new clients. On the other hand, the factor benefits by taking a specific commission documented in an agreement.
5. Clients and suppliers
A long-existing relationship with clients and suppliers breeds trust. You can fund your business by asking clients and suppliers to wait for 30-60 days before you can pay them for goods and services. The arrangement allows you time to make sales and profit instead of an upfront payment.
Leveraging your long-term clients and suppliers is one of the most inexpensive and reliable ways of funding a business. It is widely used in small businesses and startups.
6. Supplier funding
This method applies to manufacturing and distributing companies. It succeeds by inviting a finance institution to intermediate business transactions. However, your business must have a reliable track record and standard annual revenue from the finance company.
Conclusion
There are many methods entrepreneurs can use to improve cash flow in their business. Studying your business model and adopting the most appropriate means to keep the business running is critical.