Unless you’ve lucked out and found an errant pot of gold lying about, chances are your business will need financial assistance from time to time. Whether you’re just getting started and need a monetary leg up, or could use some extra cash for a major project, there are a number of options for getting your business funded. Read on to learn more about the two main types of business lending options.
Types of finance options
There are two primary ways to acquire funding for your business. The first is debt finance, the most commonly known option likely to be used by small to medium size business owners, which involves borrowing money from a lender and paying it back over time. The second is equity finance, in which you can acquire funds from sources that are not necessarily official lenders. Here we’ll take a look at the former, and how it can help your business.
Why do businesses need finance?
Your business funding has to come from somewhere – ideally not your own pocket. Financing enables a business to procure funds needed for a number of expenses:
- Large projects
- Starting a business
- Hiring employees
- Purchasing equipment
- Developing products
- Entering new markets
- Acquiring another business
- Paying for moving expenses
These are just a handful of scenarios in which finance can come in handy. It can even be relied on to simply cover the day-to-day workings of your organisation.
How do you get financed?
Debt finance is the more traditional method of business funding and is typically easier than relying on equity. Here are some of the most common forms of debt financing:
- Business term loan: Lets you borrow a lump sum and pay it back over a period of time, and is good for funding large purchases
- Business line of credit: Enables you to easily access funds and is helpful for dealing with temporary cash flow shortages
- Business overdraft: Lets you overdraw on your business account, up to a point, and has flexible payments
- Business credit card: Ideal for managing everyday business expenses and makes it easy to access funds
- Invoice financing: Offers extended payment terms without the hassle of interest charges
- Equipment financing: Specifically funds equipment purchases and uses the equipment as loan security
Whether you’re starting a business from scratch or just looking to fund an exciting new project, financing can be the easiest, most effective way to get your company where it needs to go.