Smart business finance entails getting the best financing options for your needs.
That statement sounds obvious and somewhat condescending.
Of course, no business owner thinks about getting the second-best or third-best financing option for their business.
Here’s the problem, though:
Most times, you overlook that last part of the statement: “for your needs.” So even if a financial advisor or business partner believes they have a panacea for your problems, there’s no be-all-end-all in business finance.
And the solution:
Keep reading below to learn more about your business financing options and what the best choice is.
Business Finance Alternatives
The two main categories of business finance are:
– Getting a loan: that means borrowing a sum of money that you have to reimburse according to a preset schedule, in monthly installments that feature interest. You can apply here for the best business loans in Singapore.
– Equity finance: you obtain money from investors, but you’ll have to sell them part of your company’s shares
Evidently, you can get financing for your business by taking a loan and equity finance.
There are different loan solutions to consider:
– Term loan: in this scenario, you’ll borrow a lump sum. You’ll reimburse this sum over a fixed timeframe in instalments. Term loans are what usually people understand by “loans.”
– Line of credit: when getting a line of credit, you can withdraw funds from it whenever you need. However, lines of credit give you access to less cash than term loans.
– Peer-to-peer lending: these loans are crowdfunded by strangers.
– Friends and family: this part is self-explanatory; borrowing from loved ones’ most significant advantage is usually the lack of interest
– Invoice financing: you take the invoices you’ve issued to the bank so that you can obtain an 80-90% cash advance for them instead of waiting until your clients pay up those bills.
When it comes to equity finance, think of investors. Your options are:
1. Equity crowdfunding: this case is similar to peer-to-peer lending, but the public also gets a part of your shares when they invest in your business or some other rewards.
2. Angel investors: these are people who willingly invest their money in your business, many times without expecting anything in return.
3. Venture capital: you obtain funds from professional investment groups
4. Friends and family: your loved ones decide to invest in your business in return for some shares
5. Incubators and accelerators: small companies are the usual beneficiaries of these development schemes
Apart from these two business finance options, you can also get more liquidity through:
6. Grants: if you obtain a grant from the government or a specific institution, you won’t have to repay this money. The most significant problem with grants is their strict eligibility requirements and project conditions
7. Presales: in this case, your customers will purchase your items before they arrive on the market. Reward-based crowdfunding is a type of pre-sale business financing
What’s The Best Business Finance Solution For Your Company?
Before choosing the right business finance solution, consider these factors for each option:
– Security requirements
– The attached conditions
So when choosing between these options, do so through the lens of your current situation and needs.
Here are the most critical issues to consider about business finance:
What Are You Funding?
You may need money for:
– A startup
– Buying a business
– Expanding a company
You notice how all these issues are different, so of course, they require distinct solutions. For instance:
If you need money for your business, primarily one based on an innovative tech premise, you can apply for a grant. Alternatively, you can do reward-based crowdfunding if you can hook people with your products. Gaming startups usually have a lot of success with peer-to-peer lending and crowdfunding.
Alternatively, get a large and quick loan from MPM Capital.
Solving a cash-flow problem requires less money than buying or expanding a company. So, you can usually solve this business finance issue with invoice financing or a line of credit.
Buying or expanding a company requires more money. So, you can apply for a business loan or venture capital.
How Much Do You Need?
If you need less money, you can consider:
– Loans or equity finance from friends and family
– Angel investors
– Peer-to-peer lending
– Invoice financing
If you need a considerable amount of money, consider:
- Business loans
- Venture capital
- Incubators and accelerators
Do You Need Money In The Short Term Or The Long Term?
If you need short term help, invoice financing is an excellent solution for your current cash flow problems. However, you won’t obtain more than what you’ve already sold.
Therefore, invoice financing is best for things like paying your employees’ wages or your utility bills.
But there’s another sort of “short-term” problem:
For example, you find out about new software or technologically advanced solutions that would allow you to develop a unique selling proposition. Thus, you’d be able to get more customers in the long run.
The problem is this:
Unique business opportunities cost a lot. So, of course, you have to spend money to make money, but where will you get those funds from?
Reasonable solutions in this case include:
– Business loans
– Venture capital
– Angel investors
– Line of credit
How Risky Is Your Business?
If your business is risky, chances are you won’t be able to get a business loan or venture capital. You may not even convince your friends and family to invest.
Banks in Singapore are not very responsive to businesses with high risks.
However, you can:
– Count on an angel investor with a similar risk appetite
– Get crowdfunding
– Get a peer-to-peer loan
– Use your line of credit
As you’ve noticed, the first three solutions entail convincing some investors or possible lenders that your business ideas are worthwhile. But if you can’t do that, consider a line of credit that doesn’t require extra explanations.
What Is Your Business Finance History?
If you’ve already worked with a lender or investor – and got along nicely – chances are on your side. You can negotiate more efficiently with someone who trusts you and whose quirks and demands you know. Plus, a good track record of repaying your loan or delivering promised results are points in your favour.
So, let’s say you’ve worked with Bank X well enough until now.
Bank X is known for not giving business loans to companies with “risky” plans. But, if you already were their client until now, the manager may be more willing to negotiate with you.
What if you have no business finance history?
In this case, be prepared to face some rejections because financial institutions and investors don’t have anything to judge you against. So, be patient until you build a reputation and, in the meantime, pitch your ideas!
If you need less money and no business finance history, consider:
– Help from friends and family
– A line of credit
– Invoice financing
What Will It Cost?
Consider the two business finance alternatives above: loans vs equity financing. In both of these cases, you’re giving something to someone:
– Interest to a lender in the case of loans
– Shares of profits to your investors
So, do the math and see how these add up.
The most convenient solutions in terms of costs are:
– Loans from friends and family because they usually have no interest
– Invoice financing because you’re getting 80-90% of your invoices
– Reward-based crowdfunding because you’re basically guaranteeing your loan with a product that you already plan to release. For example, you promise faster access to a video game or certain in-app features to your loyal audience who helped crowdfund your ideas
– Grants because you don’t have to give them back
So compared to these, alternatives like venture capital or business loans sound entirely unpractical. But ask yourself this:
Will the business finance solution you chose to increase your earnings? Will you lead a better life? If yes, then you’ve chosen the right solution for your company.
Click here to get the best loan from MPM Capital.