Even if you have a truly amazing idea, it is not easy to build a brand-new business venture from the ground up. It doesn’t matter if you have big plans to continuously expand your business or just plan on establishing yourself as a high performing sole trader, it is important to find sources of funding during those early days. That financial support can help provide your business with stability, sustainability and can ultimately play a part in ensuring it’s a success.
In the following post, to provide you with some helpful guidance in the right direction, if that’s the stage you find yourself at, we’ve put together a list of the 5 types of small business funding that will best help aid the cashflow for your start-up.
Cash Flow Loans
Without a doubt, one of the biggest obstacles new start-ups face when it comes to developing sustainability is getting passed those threats to their cash flow that seem to come out of nowhere, without warning. Even if you are making considerable progress in various key areas, problems with cash flow can put a spanner in the works quickly and ruin all the good work that has been done so far.
When this happens or before it happens, you can access what are often referred to as cash flow loans that work as an alternative to bank overdrafts and loans. The biggest advantage of this kind of loan is that it can be applied for online and often takes no more than 24-hours between the application being accepted, a deal being agreed upon and the funds being released.
Business Loans and Grants
As start-ups are generally seen as vital contributors to the growth of local and national economy and increase in employment opportunities, it is normally the case that governments are keen to support or provide funding to burgeoning small businesses. Although the application process for low-interest loans and grants from government-backed schemes can be complicated and laborious, it is still a good way to get that crucial funding for the early days of the business.
There are obviously a number of commercial loans out there provided by financial service providers and banking institutions. However, it is much harder for many start-ups to gain access to funding from these kinds of organisations because they are reluctant to put money into new, and often untested businesses, because they are deemed too risky.
As many mainstream financial institutions and banks are reluctant to provide the needed funding to start-ups, even if they have demonstrated their growth potential, short-term lenders have become a popular choice for many new businesses.
These providers offer financial solutions in the form loans, directed at SMEs and start-ups with much higher rates of interest than other types of loans. It goes without saying that it is in a business’s best interest to take on loans with as low interest rates as possible, but these tend to be rather difficult to secure.
So, while they involve high interest rates, they also provide the benefit of being convenient, quick and easy to access, which is priceless during those formative stages of a new business when you are full of fire, guts and determination.
Invoice finance is he name given to another form of funding that can be incredibly valuable for new businesses. There are actually two different forms of invoice finance – invoice factoring and invoice discounting. Both involve selling an invoice from one company to a different company for a lower price than that which is owed, or involves fee payment.
The difference between invoice discounting and invoice factoring is that the responsibility of ensuring the invoice recipients pay is that of the invoice issuer, while invoice factoring involves the invoice buyer gaining the responsibility to ensure the invoice is paid by its recipients.
P2P (Peer-to-Peer) Lending and Crowdfunding
One of the newest and most popular forms of finding for start-ups to arise in recent years is P2P lending and crowdfunding. Peer-to-peer lending tends to appeal to investors who are looking for huge returns on the money they inject into a business and normally back businesses with that in mind. This is all carried out online and involves a start-up describing their ideas and potential to make a profit in the most convincing way they possibly can.
The lending terms and conditions can be worked out between both parties involved, with the goal of enabling the start-up to grow and develop and then eventually payback their financers.
Crowdfunding similarly takes place online and is different in that it involves a start-up selling small stakes of equity in the venture with an aim of reaching a target amount of funding that will help them to move forward with their ideas.