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Funding A Small Business

Small businesses have for a long time been beleaguered with the same age-old issues, sourcing funds being one key problem. Many small businesses and entrepreneurs go under in their first year of operation due to a lack of funding or their inability to access this from traditional lending institutions or government agencies. Many of these businesses have had to resort to lending from family members, thrift societies, informal sector lenders and other possible channels which funds can be raised through to keep their businesses afloat.

Below are some of the channels which are opened to businesses to raise funds. Some may not be a small business’ ideal medium to raise funds, but the business owner would know which would work for his/her organisation. A combination of two or more options could also be an ideal situation.

Crowdfunding – Made popular by websites such as Kickstarter and Indiegogo, crowdfunding is the process to request funds or small investments from relatives, friends, or strangers to help fund your business. Learn about crowdfunding, if it’s ideal for your business, and how to begin, in our crowdfunding guide.

Micro-funding – Microfinance is the provision of financial services to low-income individuals. Company owners that may show that they’re economically disadvantaged can use microfinancing to gain financing when they can’t get it from a traditional bank. There are several microfinance organisations out there which support and fund small businesses that may be struggling with securing funds for daily operations and growth.

Peer-to-Peer lending – P2P lending allows a company owner to borrow and lend cash with their peers in similar or a different industry space. P2P financing is a method of debt funding that allows people to borrow and lend money without using a formal financial institution as an intermediary. Peer-to-peer lending eliminates the middleman from the process, but in addition, it entails more time, effort and risk compared to general brick and mortar lending situations.

Business Credit Cards – Business charge cards might aid in keeping companies’ expenses on the right path and help in getting the purchasing power required to run a small business. Often company credit cards will provide rewards for business purchases such as air miles or cash back.

Merchant Cash Advance – With a Merchant Cash Advance, your company sells a part of its future charge card sales to an MCA provider in exchange for a single payment of working capital. Your company directs its charge card processor to automatically forward a fixed percentage of its charge card receipts directly to the supplier as they’re settled. Find out more about the cons and pros of an MCA as this may not be suitable for every small business type.

Venture Capital – Venture capital is money provided by shareholders to start-up companies and small companies with perceived long-term growth potential. Now, this is a very important source of financing for start-ups that have no access to capital markets. This form of raising capital is popular among new businesses or ventures with limited operational history, which can’t raise funds by issuing debt.

Angel Investors – An Angel investor is anyone who invests their cash in an entrepreneurial business. The capital they provide can be a one-time injection of seed cash or continued support to carry the business through difficult times. Angel Investors are focused on helping the company succeed, as opposed to reaping a big profit from their investment.

Business Incubation – Business incubation programs are intended to support the successful development of entrepreneurial businesses through a wide range of business support resources and services. Check out Entrepreneur.com’s overview of incubation programs for the fast facts or enquire about a program near you: The International Business Innovation Association is the world’s leading organisation advancing business incubation and entrepreneurship.

 

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