Financing is quite simply the way in which money is brought into an organisation or company. It can be done through many different ways, and these are just a few business finance options.
Investment finance is sometimes referred to as equity finance, and is the process of selling off some of a business, known as a ‘share’. The people who buy these are known as ‘investors’.
Investors can bring new influences to a company, helping it to develop, as well as giving a cash boost by buying into the company. It is an interest-free way to get money, and the company shares the risks of business with the investors.
On the other hand, this shared equity nature means that the company may not be able to undertake certain actions without the consent of the investors, which can be very limiting. Furthermore, the original owner of the company will end up owning a smaller portion of the company, but, if the correct investors were sold to, the company may grow to the point where the original owner’s remaining share is worth more than 100 per cent of the company originally was.
Furthermore, sole traders or partnerships cannot sell shares, only limited companies can raise money this way.
In recent years, crowdfunding has become more and more popular, with the growth of sites such as Kickstarter making it far more accessible.
Crowdfunding involves a large number of people investing into one company. It can provide a huge amount of interest-free cash, and drum up a lot of business for the company.
However, crowdfunding can be quite difficult, and takes a lot for a crowdfunded project to take off. Furthermore, patents and copyright protection are even more important when crowdfunding, as a crowdfund-seeker will publically have to show off the ideas/products that the company will be based on.
Often, people are encouraged to crowdfund with incentives, such as getting the product before anyone else, or getting it at a reduced price, so a business will often have to give something back in order to gather enough crowdfunders to reach a crowdfunding goal.
Loans and bank funding
One of the oldest methods of sourcing funding is via a loan from a bank or other lender.
It is a simple and effective way of getting funds for a company. However, although a company can get a huge funds boost, the money will have to be paid back, along with interest. If the business doesn’t succeed, it can leave the owners in a lot of debt.
The government are keen for the economy in the UK to flourish, to help build on the economic prowess of the country, and keep up import, exports, and tax income. To this end, it is possible to get grants, loans, business support such as mentoring and consulting, and other forms of funding for a business.
The government can also help with recruiting – full time employees or apprentices and interns – and give research and development grants.
Any business wanting this type of funding will have to apply directly to the government.