Different Ways to Finance Your Business

If you have a business-oriented mind, then starting a business is one of the best investments you can ever make. However, one crucial question always arises in this process, and that is how to finance your business. On most occasions, business owners have a finite amount for starting up a business but not enough for growing it. Proper financing is a key tool if you want your business to mature right from the time of inception.

Moreover, it will help you make new investments, have a cash flow and be able to venture into new opportunities. But no one said that looking for finances will be easy, especially for small and mid-size companies. You might also need an expert from Equify Financial to help you out if you think any of these could apply to you and your business.

However, if you're looking for different ways of financing your business, here are some tips that will help.

#1. Equipment Financing

When you are starting a business, understand the benefits of having the latest forms of technology. This could include everything from heavy machinery, vehicles, data processing equipment to all the other tools that can be of help in your business. Once you have the right stuff, it will set you apart from your competitors, and it is one of the ways to success.

It is not a secret that getting correct and efficient equipment is costly. It does not matter if you are a startup or an established company, the truth of the matter is you have to sacrifice some working capital to purchase equipment. If you are thinking of upgrading or buying new equipment, then you should consider equipment financing.

What is Equipment Financing?

Equipment financing refers to a form of financing which helps businesses acquire funds to purchase equipment. You will obtain a loan which you will use to finance your business. Thus the equipment will act as collateral for the loan acquired, and as long as you pay for the credit, you will continue to use the equipment. However, if you fail to pay off the loan, then the equipment will be used to secure the outstanding balance or any other additional costs.

What are the Benefits of Equipment Financing?

When you choose to have equipment financing in your business, you have the chance to upgrade and quickly grow your business. You can purchase the latest forms of equipment which will benefit your business. However, be sure that the terms of equipment financing are flexible enough so that they can meet the needs of the business.

#2. Invoice Financing

Invoice financing refers to how businesses borrow money from lenders against the amount customers owe them. It is also referred to as receivables financing. Invoice financing is very beneficial to a business because it ensures there is cash flow, employees are paid, and companies can invest in new opportunities.

How does Invoice Financing Work?

When you are operating a business, you will sell your product and services to retailers and wholesalers on credit. Businesses will offer their products and services to customers which they will not pay for immediately. This can affect the business because the money that can be used to run the business is not available. However, business has to go on; that is why some businesses opt to sell their invoices.

The lender or the purchasing company is given the invoice which contains the total amount of the bills and the due date. The business will sell its accounts so that it can receive funds which will enable it to cater for its expenses. There are two forms of invoice financing

1. Invoice Factoring- In this case, the lender will pay 70 to 80% of the invoice while the rest will be spent in interest by the business. When a company decides to use invoice factoring, it means that consumers are aware of the arrangement between the company and the lender. It is the lender who will collect the bills from the consumers.
2. Invoice Discounting- This method is very similar to invoice factoring. However, the business itself will collect the bills from the consumers.

This method of financing usually benefits the lender, but it is also a good way of keeping your business afloat.

#3. Debt Financing

Debt financing refers to acquiring finances with an obligation of repayment. You can receive funds by acquiring loans from banks, Saccos, friends and family and lines of credit. Debt financing requires that you repay it with interest.

#4. Equity Financing

Equity financing refers to an increase in the amount of stockholders’ equity to acquire a particular asset. This can be done by increasing the shares in the business but reduces the shares of the business owner.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.