There are many options for business finance, and suitability will depend on a number of factors, like how much finance is required, whether you have a new or established company, and whether you have any security. Consider each type of finance, but speak to a professional before making a decision. If you outsource financial accounting service, you will be able to consult your provider.
Equity finance
This is also known as investment finance, and is when you sell shares in your company to investors. If the company makes a profit, the investor takes a percentage as reward, usually as a dividend. In addition to the finance introduced, an investor will often have many years of experience and knowledge that they are happy to share with you. However, you will own fewer shares in your company and you may lose the freedom of being able to make decisions without consulting investors. To be able to sell shares, you must have a public limited company, so this is not an option for a sole trader or a partnership.
Crowdfunding
This type of finance is when a number of people contribute an amount of money to your company, either as a loan or as shares. It is an alternative to traditional forms of finance, like a bank loan and may also include investors who have a wealth of knowledge and experience to share. To be viable, the amount of investment has to reach the initial funding target, or the money has to be returned to investors.
Loans
A loan is a specified amount of money borrowed over a set period of time, paid back with interest. A loan can be provided by a bank or financial institution or even family and friends. You may increase your chances of securing a loan if you provide some security. A loan is more suitable for a specific expense rather than being used to meet everyday expenses, as financial difficulty may mean that you can’t maintain repayments. If you provide security, like your home, make sure you can meet the repayments.
Overdraft
An overdraft is suitable for short term finance requirements. It is a facility normally provided by the bank and is for a specified amount agreed between parties. You may be charged an initial fee and may pay interest on any money that is used. However, you only borrow the amount you require and can pay it back as soon as you are able, which reduces the amount of interest you will pay.
Call us for a chat if you are considering finance for your company.