Posted: 18. October 2019 by: Rupert Tennant

How to Fund a Business

The biggest obstacle to starting a company is usually a lack of funds. That’s what stands between having an idea for a business and realising it. This is why a big part of your plans from day one should be how to fund a company and how to make it financially independent right away.

There are many ways to fund a company, and you should go through them before deciding which one suits your idea and your future business the most.  That way, you can have a financial scheme to work with your overall infrastructure.

Get a loan

The most common way to fund a company is to get a bank loan that will cover the startup’s costs. This is what most businesses do because it works and because it’s something you can plan for and prepare for since the rates and instalments are constant.

There are downsides to this since it means that you’re in a relationship with the bank in the long run and this lack of freedom may be troubling to some. It can also outlast the business itself.

Personal assets

An opposite way to go is to use your own personal assets to fund the company. This means you won’t need to deal with a bank for years to come and that you get access to funds quicker than you would in any other way. However, it also has its downsides like any other form of funding would have had.

The main of these downsides come from how the business needs to be set to use the owner’s personal assets. You’ll need to set the company up as a sole trader business, and that will affect your taxes.

Business deals

It’s also possible to set up a long term business deal with a client or customer. This means that they will pay for your products or services in advance and you’ll have a steady stream of work and funds from day one. This is only an option for companies that could find such large markets for their work.

It also limits your business somewhat since it leaves you with only one client for a while. That means that your business may end up being dependent on someone else’s work, and you could lose some of your freedom as a business owner.

Crowdfunding

Crowdfunding is a very useful way of funding a company since it’s also a marketing tool. The money comes from future customers and clients that pledge it to you before your company is yet started and they get special deals and perks for the favour.

It’s only an option for those who already have a large social media following and can present their future work interestingly and fashionably. Therefore, this is an option for creative companies and those who can present their work before it’s done.

Credit line

A credit line is similar to a loan in terms of the fact that it comes from a bank and that you need to provide the bank with a lot of financial details before you get approved for the credit line. The difference is in how you get the money and how much of it.

When you take on a credit line, you don’t borrow all the money at once, but you get to use the money that you need when you need it. There’s a limit to how much you can take overall and how much you can take in a single drawing.

Government subsidies

In the end, some businesses have the chance to be funded by the government based on the industry they work in. The government usually helps companies in two ways. One is to provide tax cuts and the second is the subsidies themselves which are always politically controversial.

It’s usually away for a small company working in the eco-friendly industry to get their first break in the field. This also means that the government will be able to control your business somewhat or review your business practices.

Conclusion

There are many ways to fund a small company, and you need to choose the one based on how you plan to run that business in the years to come. That way, you can make sure that the business has enough funds to do what it needs to be done, and you’ll be able to repay it.

The most common way is to go with a bank, and there are also at least two ways to go into a relationship with the bank. There are also ways to get funded from your future customers as well. It’s a decision you need to make carefully.