Business Finance Write For Us – Financial management is one of the critical areas for every company, especially for SMEs. In recent years we have seen a considerable change in terms of financial providers and the conditions of their services.
Although self-financing and bank financing continues to be fundamental pillars for obtaining resources, numerous alternatives have now emerged that provide greater flexibility and better conditions in general for small and medium-sized companies.
When dealing with the issue of business financing, one can use funds from the company’s partners; if you can, resort to external financing, either via loans, issuance of bonds or through some other instrument that is useful to obtain the capital you need. Next, we will see the types of financing a company can opt for and which may be more convenient according to your needs.
Types of business financing
The well-known “Friends, Family and Fools” is usually the first source of financing that every company resorts to in its beginnings. This form of funding uses the entrepreneur’s savings and the help of family and friends who trust the business project they are working on.
Also known as seed financing, company shares offered to investors so that they may acquire a part of the business in exchange for capital. Apart from the FFF, this financing can come from Angel investors and crowdfunding. Due to being a very early stage in the company, it considered an investment with a lot of risks since the company is usually not working at 100%, nor does it have enough metrics on the development of the business.
Once the company stops being an idea and becomes a reality, we have other sources of financing, such as public funds. There are mainly two types: non-refundable grants and available loans. In the second case, the capital must repaid under more advantageous conditions if we compare it with loans from private institutions.
The “angel” investor is a natural or legal person who offers capital and knowledge to a company or startup through financing. In exchange, you will receive a profit in the future, which usually translates into a shareholding in the company. Angel investments are generally the second round of financing for startups with high growth potential.
There are different bank financing instruments that a company can resort to have the necessary capital flow in its daily operations. However, to receive this type of loan, a company must meet many requirements and conditions before becoming a financing creditor, in addition to offering guarantees that guarantee the amount. Finally, the interest rate on this type of loan is high, so it is advisable to think carefully if a company wants to assume this type of financing.
Administration. Venture capital financing, also known as venture capital, is that provided by private funds to companies or ventures with high growth potential. These funds manage and contribute money from individuals, companies or institutions, investing in innovative companies or startups with great possibilities to be successful. In exchange for this financing, venture capital funds receive a direct shareholding in the company, which is usually 20-30% of the total, in addition to acquiring voting rights in relevant company decisions and a position on the board of directors. Once the project’s success has achieved, the Venture Capital Companies withdraw their investment by selling their shares to other interested members or on the Stock Market, if applicable.
Another financing possibility for companies with a specific size, traction and growth potential is through private capital sources, also known as private equity. Unlike venture capital, private equity funds tend to invest in all types of companies, with more significant amounts and acquiring a more substantial percentage of the companies where they invest. In addition, these funds tend to invest in a smaller number of companies since they take more into account the risk they assume with each of them while they invest large amounts of capital. Therefore, they also expect a higher return on investment than VCs.
To finance the purchase of machinery or any company asset, such as vans, companies usually do so via leasing, also known as financial leasing. This rental contract incorporates a purchase option in favour of the lessee to exercised at the end of the contract., Due to its characteristics, there is no doubt that it will exercised, generally because the purchase option amount much lower. The value of the asset at that time. This way, the company can acquire an investment and pay it in instalments comfortably and efficiently.
Factoring or invoice discount
Business. For those companies that sell on credit, there are much more convenient financing options for their needs. With the discount or advance of invoices or factoring, for example, a company can have credit immediately in addition to reducing the risk of non-payment of its customers. The problem is that companies that sell for 30, 60, 90 or more days require capital to continue operating or growing; however, they do not have the necessary liquidity due to their accounts receivable. Some financial institutions perform traditional factoring services; however, the processes have streamlined with the advent of online financial services platforms. Reducing the costs of this operation a highly recommended option for small and medium-sized companies.
You can discover all the advantages and benefits of online factoring at Invoicedo.
Once the financing sources and the states in which one or the other are more appropriate have been classified and defined, the next thing we must do is find out the cost of each alternative or the set of several of them and compare it with the performance that is you will get from the new project.
If it is internal, the financing comes from the company itself. Your funds will used to economically “support” a new action, activity or need of the company.
This financing will come from economic reserves, possible amortizations, benefits, etc. It will be a decision on the company’s investments that will also have to returned once used.
In this case, a source external to the company will be in charge of the necessary financing for a specific project or need. How can we get the money?
Credit etc. Suppose we classify the type of financing according to the owners. In that case, we will have external financing means, among which we can find multiple products or systems such as credits, issuance of obligations, mortgages (in one or different currencies), credit cards or credit notes. They part of the required liabilities because, at some point, they must returned (they expire), as well as the means of financing itself, which would the company’s treasury, the cash it has, with the precaution that they not blocked because they constitute part of an endorsement, do not run out of liquidity. In addition, all this must done with caution to avoid a situation of suspension of payments or the company’s company’s bankruptcy and constantly review the financial leverage.
It is a collective financing formula through which people totally unknown to the company can contribute a monetary amount in exchange for compensation (usually for the product).
Is an emotional link with which specific, very representative projects have carried out. It usually done with new products that lack economic support or social projects.
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