Every startup will need funding for many reasons. Businesses run with money for sure. The difference lies in how entrepreneurs will choose to source for the needed funds. While some will prefer to seek funding from investors in exchange for equity, others prefer to bootstrap.
Here are the5 most common reasons that most businesses apply for finance.
Starting a business
New businesses that are still in the startup stage will need funding to get off the ground, and good cash flow is essential to a small business. While most entrepreneurs will use their own funds to start the business, very few manage to entirely self-fund the company to profitability, and will therefore have to seek external funding. There are a variety of options for external startup funding, including bank loans, borrowing from family and friends, equity investment from a business angel, crowdfunding, and funding grants. A loan to start a business can be used for everything from buying stock to marketing to hiring staff, but startup funding can be difficult to secure and many traditional finance providers will require lots of information, such as a detailed business plan.
Asset purchase
Your business will need assets for it to run successfully. While you may have enough cash to cover working capital expenses for your company, you may look for a loan to cover the purchase of new assets to enable your business to expand. An asset funding loan is a great way to spread the costs of acquiring an expensive new asset. Fixed monthly repayments and loan terms from 6 months to 5 years can help you plan your cash flow in advance so you can make the most of your opportunity to grow.
An asset purchase loan can be used to buy different things for your business, depending on what you need to fulfil your expansion plans. Funds can be used for business vehicles, whether you’re looking to buy your company’s first vehicle or want to increase capacity by adding to your existing fleet. You could also use a loan to buy office and IT equipment to make sure your staff have everything they need to grow the business, or new machinery to enable you to make new products or scale up production while spreading the cost instead of paying a large amount upfront.
- Working capital
Figures from the British Business Bank’s 2019 Business Funding Survey showed that working capital is the most common reason for small businesses to seek funding.
Sufficient working capital is a key aspect of any company’s financial health, and not having enough working capital can have a serious impact on the future of your business. Many businesses choose to apply for external funding to create enough working capital to enable them to fulfil their growth ambitions. A loan can cover short-term funding requirements while giving the business the money it needs to grow, or can bridge the gap between customer orders and supplier payments to help the company meet its funding obligations.
Working capital funding can also allow your company to take advantage of new opportunities that arise, investing in new products or services to enable you to expand. Working capital loans can provide a useful ‘cushion’ for your company should you need a bit of extra cash – you’ll know your day-to- day running costs are covered with a loan, so you’ll have the funds available to meet any unexpected costs. Seasonal businesses may benefit from working capital funding during their quieter periods to cover basic expenses.
Growth funding
If you’re looking to grow your business to take it to the next level, you may very well need funding that enables you to execute on your business plans. Whether you want to increase sales, expand your range of products or services, move into new premises, hire more staff, or expand internationally, a loan for growth finance can help. However you are planning to expand your business, growth finance that’s right for your company can help you take advantage of new opportunities and make your ambitions a reality. If your business has its daily running costs covered, external funding may be the solution you need to grow. Many such loans will have fixed monthly repayments over the term of the loan, enabling you to more easily plan your business finances as you grow.
Debt restructuring
If you need to restructure your company’s debt, a loan that consolidates your borrowings and reduces costs can make your finances more manageable for your business. A loan to restructure your existing debt can make financial planning easier by reducing the number of monthly repayments you have to keep track of, and could potentially reduce your total monthly repayments. Refinancing your existing company debt can help your company grow by freeing up cash in your business for working capital and expansion.
My name is Chigozie Japhet. I am a content writer, and a brand strategist. I like writing, reading, researching and watching football, especially my team, Man United. i believe in working hard, and also in relaxation as all work without play, makes Chigozie a dull boy.
