For a business to grow or expand or increase its capacity – it needs money.
it is unavoidable but the problem is that money is sometimes difficult to find.
Many familiar factors make it so; the demand for finance is really high and super competitive (like, who doesn’t want money) then another factor is that there is not enough money out there waiting to be lent out as well as other factors like risk, profitability etc.
But that does not change the fact that you need it, right? So, how do you get the money to fund the growth of your small business?
The answer to this question differs from business to business, I will highlight a few popular sources of small business growth financing below:
1. Business Earnings
The first place a small business owner looks when looking for funds for growth usually is the purse of their business.
This is the cheapest source of capital available, so they look into their books to see how much is available and how much of it they can plough back into the business to expand.
But the trouble with this source is that it is usually not a large enough purse and may not sufficiently cater for the growth drive.
In some instances where it does, it can affect the cash flow of the business and deplete the cash reserves of the business exposing it to risks.
2. Bank Lending
The next source most small businesses turn to when their business earnings are too small or risky to fund their growth is lending from financial institutions.
This is a really popular growth finance source because it provides access to finance (monetary and non-monetary asset) that is sufficient to grow any small business.
It is debt finance and does not require the business owner to sell any stake in their business to get. But the problem is that the interest rate is usually high and it requires collateral to be disbursed (a hindrance for many small businesses or service without collateral).
3. Equity Finance
A business that cannot fund its growth through any of the means above may decide to sell equity in their business to investors.
This simply means that they raise money by selling a percentage of their business.
One advantage here is that the business owner forms a strategic partnership beyond the funds raised that would accelerate their growth, it also enjoys access to finance that can be channelled into growth projects for a long time without thinking of paying it back.
The disadvantage is that no business owner wants to lose control of any part of their business.
4. Government Programs
The small business owner can sometimes, take advantage of government funding programs like grants and loans at lower interest rates (usually below 10%).
This is usually highly competitive and has a limited reach so, it is not always something to rely on.
5. Supplier Credit
A great source of credit for a small business is the supplier.
They are a great source because the business owner already has a relationship with them which may have been cultivated over time.
The business owner can ask the supplier to send them goods on credit for a specified period of time, this may involve an interest rate that may vary from supplier to supplier.
Supplier credit is a good source of growth funding when the business needs non-monetary assets to grow.
Crowdfunding is an emerging source of financing for many small business owners today.
Although it is yet to gain mainstream acceptance, a few small businesses are already successfully using it as an avenue to launch new projects and grow their businesses.
It involves listing your products and need for funding on a crowdfunding platform to attract investment from private individuals in exchange for your products or some other forms of compensation.
It is a relatively cheaper source of finance compared to other traditional options but it requires more effort to be successful.
Growing a business is not an easy task, it can be both frustrating and stressful but the rewards are high that is why many business owners continue on this journey.
In today’s economy more than ever, finance plays such a crucial role in the success of any business.
This is why we provide our SME Financier service to increase the chances of small businesses to raise capital.
Click here to see how we can help you raise capital to grow your business successfully today!!!.