Although often rewarding, starting your own business can be quite a challenging and daunting process as well. Apart from great products and services, as well as a brilliant business plan, you will also need capital in the form of funding in order to grow your company and achieve success. To help you navigate that complicated process, here are some of the best and most practical financing options any growing company could benefit from:
Venture capitalists
Usually being outside groups instead of individuals, venture capitalists offer capital in exchange for partial ownership of your business. The percentage of capital to ownership is often negotiable, and depends on the business’s valuation. Venture capitalists tend to be a great option for startups that don’t have any collateral to function like a lien when taking out a small business loan, but it is also a suitable fit only when a company can show a competitive edge or high growth potential.
However, not all advantages of venture capitalists are financial. Many small businesses establish relationships with venture capitalists in an effort to gain more industry knowledge, good connections, and clearer business goals, something that might be a priority for most new entrepreneurs.
Partner financing
With this funding solution, another business in your industry will finance your growth in return for gaining access to your staff, products, and services, ultimate sale, distribution rights, or a combination of these aspects. As it generally involves an equity sale and not a loan, partner financing is often similar to venture capital options, but it can be revenue-based at times as well, providing partners with certain percentages from each product sale, for instance.
Although this financing solution is often overlooked, it’s a great alternative for many startups. As the business you decide to partner with will likely be larger and more established, working within your or a related industry, they could also offer relevant marketing, sales, and consumer opportunities you might be able to take advantage of as well.
Trade finance solutions
If your growing business often deals with importing and exporting, seeking a funding solution that will help to facilitate commerce and international trade might be the best option. In those instances, efficient Trade finance solutions can be ideal for making trade expedient and viable.
By offering access to a useful, revolving line of credit, Trade finance will allow you to quickly pay any international and local suppliers, giving you the opportunity to strengthen important relationships and speed up business growth. This solution will also empower you to overcome common cash flow challenges and close your working capital gap, thus allowing you to diversify and partner with the best suppliers for your company, leading to accelerated success.
Convertible debt options
This financing option allows you to borrow money from an investor group or a single investor, with the agreement that the debt will be converted into equity in the future. While this might be a good way of funding small businesses and startups, you do need to be willing to give up some control of your company to investors.
With convertible debt, investors will need to be guaranteed a certain return rate each year until a predetermined date or specific action happens that can prompt the option to convert. Although relinquishing part of the ownership is a significant disadvantage, some companies consider the lesser strain on cash flow a good enough compromise to choose convertible debt.
Merchant cash advances
Merchant cash advances represent quite a quick and relatively simple way of obtaining funding, but they are often considered only as a last resort due to their high costs. Using this solution, a financial provider will offer a lump sum of funding, and then purchase a portion of your debit and credit card sales.
Each time a merchant processes such a sale, the provider will take a certain percentage until the debt is fully paid back. While this might seem convenient at first, it could turn out to be quite an expensive solution that’s harmful to your cash flow, which is why you should only opt for it if none of the methods described above are viable.
Evidently, there are a number of different ways you could finance a growing business. No matter which option you choose, just make sure it’s the wisest and most practical solution for your company.
