Countless small businesses are rightfully concerned about finding the most appropriate funding solutions for their unique requirements. While there are many options, it can be somewhat difficult to appreciate the benefits that each has to offer.
What are some of the top methods to consider? What are the merits associated with each of these funding sources? Are there any pertinent questions to ask before making a final decision? Is there a standard fund solutions meaning that can be used as a blanket definition? These concepts are important for any startup business that hopes to enjoy long-term success.
Why choose fund solutions for a business?
Many enterprise-level organisations will require liquid capital in order to break into an existing marketplace. This liquidity can then be used to address various requirements, including (but not limited to):
- Procuring new equipment
- Onboarding employees
- Product development
- Sales and marketing
Furthermore, securing liquid funding solutions can help to demonstrate the viability of a startup firm to potential investors.
Now that the role of funding solutions for businesses is clear, let us examine some of the most powerful options as well as the advantages of each.
Crowdfunding essentially involves procuring capital from the general public (the “crowd”). In return, these individuals are provided with rewards such as a stake in the company or public recognition. One advantage of these funding solutions is that they are excellent ways of promoting a startup business while determining the level of demand for a product or service.
Business funding sources may also come in the form of a government grant. The primary advantage of this approach is that the firm in question is not taking any type of financial risk. No interest is attached to these vehicles, and – unlike venture capital strategies – the lender will not require an equity exchange in return.
Third-party asset management firms
Determining which funding solutions are the most appropriate can be difficult, particularly for those with little prior experience. This is why leveraging the industry experience of a professional asset management firm can often represent the most logical choice. Some notable advantages of this approach include:
- Robust support for capital-raising ventures
- An in-depth understanding of relevant regulatory requirements
- Risk mitigation
- A greater level of investor confidence
- Real-time oversight
Furthermore, these entities are capable of providing targeted funding solutions in a direct and centralised manner. This helps to avoid working with numerous firms that might otherwise lead to even more confusion.
Venture capitalists are individuals of a high net worth who choose to invest a portion of their funds into a startup company. In return, they will be provided with a stake in its ongoing operations. This is essentially a form of equity financing.
These are also some of the most well-known corporate funding sources, as venture capitalists are often drawn to companies that are potentially capable of offering a substantial return on investment over time.
Small business loans
It can be argued that small business loans are the most recognised funding solutions. Often provided by banks and lending institutions, these loans can provide an appreciable amount of liquidity within an amenable time frame. Criteria for approval will involve credit history, the amount required, and the type of venture. It should still be mentioned that both the interest and the initial balance will need to be repaid to the lender. Thus, the terms and conditions should be carefully examined.
Family, friends and coworkers
Not all types of funding solutions in the UK are associated with formal relationships and concrete agreements. It may also be possible to obtain extra liquidity through the contributions of family and friends. One major advantage here is that concerns associated with traditional loans (such as late payment fees and high interest rates) will not be present.
Some potential downsides may nonetheless exist. As mentioned in this article related to small business funding, personal relationships could be jeopardised if one or both parties do not adhere to the agreement. Therefore, it is wise to carefully choose which individuals are the most suited for this type of arrangement.
Sustainable funding options
ECO funding solutions have likewise become increasingly popular alternatives in recent times. These government subsidies are handed out to specific enterprises. They are primarily meant to provide incentives to businesses that hope to adopt a “greener” approach to their operations.
ECO funding represents an important facet of sustainable finance as a whole. Sometimes referred to as environment, social and corporate (ESG) governance, several principles are emphasised:
- Ensuring long-term growth
- Focusing upon ecologically sensible investments
- Promoting a greater degree of fiscal transparency
- Supporting environmentally friendly initiatives
How to determine the right funding solution
We can now see that there are many ways that a business can access liquid capital. Answering the following questions will help to determine the most appropriate strategy:
- How much capital does the enterprise require?
- Is short-term liquidity desired or will long-term fund growth yield the desired results?
- Can the business afford trading equity for capital?
- What government grants are available?
Whether referring to a startup organisation or a well-established enterprise, funding solutions always represent an important component of growth. After all, there is no reason why a lack of capital should hinder one’s professional dreams.