6 Most Common Forms of Funding
Your business idea may be solid, but without adequate funding your chances of success are slim. Here’s an overview of six most common forms of financing for your new or growing business:
1. Investment Finance
Also known as equity finance, investment finance involves selling part of your business to an investor as shares. The investor then shares part of the business’ profits or losses.
Loans are a type of credit that the borrower repays over a pre-determined length of time. In addition to repaying the amount
you borrowed, you will probably have to pay interest. The amount of interest depends on the length of the loan, amount borrowed & whether the loan is secured.
Your interest rate will either be fixed, which means it won’t change during the course of the loan, or it will be variable, which means it will change with bank costs. You can apply for loans through private financial providers, such as banks, or through public funding, such as government schemes.
You can apply for grants through private institutions like charities or public institutions like the government or European Union; however, there is usually a lot of competition. Grants are usually awarded for a specific project or purpose.
An overdraft is a credit facility that you agree to with your bank. It temporarily allows you to spend more money than you have to cover short-term financing needs. You set overdraft terms with your bank and usually have to pay interest.
5. Invoice Financing
Invoice financing is when a third party agrees to purchase your unpaid invoices for a fee. The third party will either provide invoice financing by ‘factoring’, where the invoice financier manages your unpaid invoices and collects on your behalf, or by invoice discounting, where the financier only provides money up front that you slowly repay as your invoices are paid.
6. Leasing and Asset Finance
Rather than owning assets, you can lease or rent them to reduce initial costs.
Securing the appropriate financing for your business can be tricky. Consult the government’s Business Finance and Support Finder at www.gov.uk/business-finance-support-finder, and contact the professionals at CCS Insurance Services Ltd to ensure the financial viability of your small business.