Lack of sufficient funds is one of the common reasons why most businesses fail. Businesses use funds to pay workers, buy equipment, and settle all other operational overheads. It goes without saying that funds are the backbone of any business enterprise. Without funds, a company won’t be able to take off from the ground. The good news is that businesses can utilize some of the available cheap sources to remain afloat.
So, if you want to increase your cash inflow and remain operational, stick here for a few minutes. You’re going to learn about some sources of funds you can utilize to finance your business.
What Are Some Of The Faster And Affordable Sources Of Funds?
Though there are several sources of business finance, some of the fastest and cheapest sources include the following:
Taking a loan is one of the common sources of business funds. It involves borrowing money from banks and other financial lending institutions. The borrowed money is known as the principal and is returned plus the accrued interest for monthly installments within a specified period.
However, due to the economic crisis and intermediaries’ commissions, taking a loan to finance your business can be a bit expensive. Nevertheless, you shouldn’t shy away from funding your business through loans because you can avoid brokers and work with direct loan lenders. This allows you to avoid brokerage fees and other associated costs.
Relatives And Friends
You can also finance your business through family and friends’ aid. Getting money from people who are close to you is one of the fastest and affordable sources of business finance. It involves sharing your dream with your family members and friends, then requesting them to finance your business.
While this source of business finance can attract small interest rates, you can also get money at a free interest rate. So, if you want a cheap source of business funds, it’d be a good idea to approach your friends and relatives.
Government grants are another source of funds every business should consider. It refers to financial aid awarded by the federal or central government to companies and researchers who show a high chance of succeeding in their endeavors. In addition, grants are awarded to projects that benefit a large part of the population.
One of the major advantages of taking a government grant is it’s non-refundable. This means you don’t have to return the money to the government nor pay any interest on it. So, if your business is financially distressed, your best deal could be to apply for a government grant. However, it’d be a good idea to find out whether you meet the grant-specific requirements.
Also known as invoice financing, factoring is another affordable source of business finance. It’s a financial transaction between a business enterprise and a third-party firm known as a factor. In this transaction, the factoring firm agrees to buy the account receivables of the business in question at a discount.
Factoring is applicable for businesses that sell their goods or services on credit. So, if your debtors take too long to settle their dues, you can work with a factoring firm to promote your cash inflow. Besides, this relationship can allow you more time to grow your business rather than spending your time collecting debts.
Angel investment is one of the easiest ways to raise small funds, especially for startups and small businesses. It involves working with a private individual who’s willing to provide your business with financial support in exchange for some ownership in the future. Such individuals are known as angel investors and might be your friend, relative, or any other wealthier person.
Seeking funds from an angel investor means you don’t need to repay the money because you’re exchanging it for part of your business ownership.
Also known as peer-to-peer, social lending is another fast and affordable source you can consider when financing your business. It allows people to borrow and lend money within themselves without an official intermediary. Social lending is done through digital channels that link lenders and borrowers. So, you need to research and find which social lending platform best suits your business.
Having an insufficient fund is one of the biggest challenges facing many businesses today. Without enough capital, a business won’t be able to pay for its overheads and other operational costs. However, there are some cheap sources of funds any business could consider when financing its operations. These alternatives include taking business loans, seeking friends and family’s aids, applying for government grants, working with a factoring firm, and others.