Types of Business Funding

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If you have a great idea but you don’t know how to put it to practice or have the money to do so, then you might be interested in learning the types of business funding. There are several ways to get a hold of sums of money to start your business and we are going to present them here so you can decide which one is most suitable for you. Keep in mind that not every type of funding is possible for every type of business, so it is up to you to recognize which one is applicable to your idea.

Some types of business funding are more difficult to access than others, and you’ll be surprised to know that not all of them come from the bank or the government. The information you will find below is merely basic, and is meat to orientate you towards finding more information and researching in order to see what type of funding your business could benefit from, and which options are available in your area.

  • Asset finance – This term refers to a variety of funds that one could get, all of which include the business’ physical assets. Through this type of financing, you improve your business’ cash flow by releasing money caught up in physical assets; many companies could benefit from financing like this, but not too many business owners are aware of this option. Among other common types of asset finance, there are asset-backed loans, hire-purchase agreements or other leasing options.
  • Cash advance – This is a good option as well, but your business needs to be on its feet already, just like with asset finance. This type of funding implies selling a part of the company’s future debit in order to get up-front payment; this is usually done with a finance company. The arrangement ends when the company pays back the sum agreed upon – which is obviously bigger than the sumĀ  that was initially borrowed. Nevertheless, this can be quite a good momentary option, because it allows a business to improve its cash flow and keep afloat until better times come.
  • Commercial mortgage – Exactly what it sounds like, a commercial mortgage is a loan – generally given by a bank – secured against business property or assets. This type of business funding works much in the same way as residential mortgages; the entity which needs the loan uses a company asset or premises to secure a loan, and it must also pay a deposit representing a percentage of the price. Thus, the company’s cash flow is improved, and the business pays mortgage rates until the loan is completely paid back. However, know that this type of endeavor can be used both by businesses that wish to expand their property ownership, but by businesses that want to release tied-up capital as well.
  • Equity investment – While it is accessible to most types of business, equity investment is difficult to access to most. This is where you divide your business into shares and sell a part of those shares – while keeping most of them – to investors; you get the cash flow you need, and the investors are entitled to a part of the business’ future profits. The only way you can attract investors is by promising them a money return bigger than the sum they invest initially, or part of the proceeds when the company is sold.
  • Grants – This is the best type of funding anyone can hope for, except very few businesses can actually get it. A grant is a sum of money offered to a business with nothing in return, and it can be offered by the government or an organization. However, usually the types of businesses that receive them are those doing something with direct impact in society or in the community, such as academic research or a non-profit organization. The sums of money involved are also quite small compared to other types of loans.
  • Business loan – This is similar to a personal loan, and it involves one person or entity lending a sum of money to the business. The agreement can be short, medium or long-term, depending on how those involved agree, and a business can use it to expand or to improve its capital.

These are the basic types of business funding that you need to learn more about; one of these opportunities may be the right one for you and it may serve to save or help you expand your business.

June 2022