If you want to start a new business, it is important to understand how you will finance it. Financing your business will give you a solid financial foundation and ensure you have sufficient resources to help your business succeed. As explained in this guide, there are many ways to finance new business and different ways are suitable for different types of businesses.
What is business financing?
Business finance is simply the money needed to do business. You need capital to start, run or expand your business. Having enough capital will help you grow your business, allowing you to purchase raw materials, hire workers, invest in equipment and more.
Finance is the foundation of business because without it is almost impossible to do business. As an entrepreneur, here are 12 reasons you need a business bank account henceforth.
Best ways to finance new business:
There are many ways to finance a new business; therefore, it is important to examine each method carefully to help you decide which option is best for you. Here are some tried-and-proven ways to fund new business ideas:
1. Money from personal investment
Investing your own money in your business is faster than asking for money, and you don’t have to pay interest because you don’t borrow money from anyone. Using your own money can also help you show potential lenders that you’re confident in the company’s success.
If you have saved enough money over many years or have received a large sum of money or inheritance, you will have a lot of money to invest in your business.
2. Money from family and friends
It is also worth asking family or friends if they would like to invest in your business. They may agree to loan you money that you agree to repay with interest within a certain period of time. Or they may request shares from your company in return for their investment.
The advantage of borrowing money from family or friends is that the interest rate is lower. The downside is that if something goes wrong, your relationship will suffer.
Whichever you choose, make sure you have a legal contract that explains how everything will work. It should explain whether the money is a loan, an investment, or a gift; if you have to repay the money, how it will be repaid, how long it will take to repay it, and what you will do if you can. I will not refund.
3. Seek partnership
To secure financing for your small business, you can partner with a partnership rather than expecting 100% of the work. What happens with good partnerships is that you don’t have to bring 100% of the money into the business, but you can collaborate with one or two people to raise money for the business.
In return, your partner can be creative, get a fair share of the work, or benefit from your results, whatever you choose. The benefit of collaboration is to spread the risk. So if everything goes wrong you don’t have to be the only one calculating the damage.
Another thing is that it helps you get the money you need. Although you may not get 100% profit. In general, if you choose to invest from a good partner, the benefits outweigh the negatives, especially if you can get a good business model.
However, when looking for a partner, make sure you are looking for someone who has the same interests as you. Also find knowledgeable and reliable business partners. This will help you start your business without too much stress.
Once again before we start; Come to a realistic agreement that works for you and your partners, including current and future phases of the business.
4. Get a startup loan
Startup Loan is a business loan specifically provided to help new businesses start and grow in South Africa. It works like other business loans where you borrow a lump sum and pay it back with interest on a monthly basis. These funds can help pay for ideas, testing, design, technology, facilities, marketing and more.
To be eligible for a startup loan, you must be over 18 years of age, reside in South Africa, and your business must not have been in operation for more than 36 months. You also need to be able to prove that you cannot get a loan from another source.
5. Money from sale of shares
Stock investing is another option you can explore and participate in selling your business in exchange for investment. Therefore, equity investors will have a claim on your future earnings, but you won’t have to worry about paying the money back or paying interest.
You may choose to receive more equal amounts of income from different types of investors, such as commercial investors, venture capitalists, and private investors.
6. Crowdfunding
Crowdfunding allows you to raise money from many people through an online platform. Depending on the type of investment you use, these people will receive shares in the company or make a profit in return for their investment. A lot of money not only helps you raise money but also improves your business profile, increasing your chances of success.
If you’re looking to raise money through crowdfunding, you’ll need to decide how much money you need and then create a campaign that showcases what your business can offer and why you want the capital. This will be available on the crowdfunding site for a few days. Platforms you can use include Seedrs and Backa Buddy.
Please note that not all crowdfunding campaigns will be successful and you will be lucky if your business grows well and has a new idea. If your business model is traditional, spending too much money may not be a good option for you.
7. Peer-to-Peer Lenders
P2P lending is a type of lending business that many private entrepreneurs do mostly through online platforms. The idea is to eliminate the need for financial institutions like banks and replace people who need loans with people who have money to invest. Borrowers can get better interest rates from standard loans, and investors can get better interest rates from standard savings accounts.
If you are considering applying, you should apply on the peer-to-peer loan website. Your risk profile will be assessed and you will be assigned a credit score. You will then receive different options from lenders with different interest rates and you can choose the best one for your business. The stronger your business, the lower the credit.
8. Business Grants
Business Finance is money given to help a business grow and develop. For example, you may choose to invest your money in training, equipment, or exploring a new business. Business grants are usually provided by the government or other companies, and unlike loans, they do not have to be repaid.
There are hundreds of different grants you can apply for in Nigeria, but these are typically targeted at a specific business, community group or type of business, so the process needs to be rigorous. Depending on your business, you can choose from the following options:
Innovation Grants are provided by financial institutions to support new ideas and business development.
• R&D tax credit is paid in cash by the government to encourage companies to conduct research and development activities related to science and technology.
• Local Enterprise Partnerships are voluntary partnerships between local authorities and businesses to provide business finance, support and local guidance.
• When applying for a business grant, you must complete a business grant application explaining how your business meets the eligibility criteria and how you will do so if you receive the grant.
9. Source funds from high net-worth individuals/celebrities
Another way to is to receive money to finance new business is to seek funds from a high net worth individual (HNI). When you start a business, networking and meeting people are crucial to your success.
You want to build relationships with people in your industry, potential customers, and business people. You should share your idea and your company’s vision with the right people so that the right people can support your work.
Realizing that your opportunities and opportunities to interact with HNIs are limited, give them good advice and good business information to gauge their interest. Similar to receiving financial investments from family and friends, be sure to sign a trust agreement for each investment.
10. Seek business loans
Business loans are a popular avenue for loan companies because they give you access to a lump sum of cash that you can repay monthly with interest at a specified time.
Many commercial banks and online lenders offer business loans, which means you’ll have many options. Be aware that if you haven’t been in business for a long time and don’t have much of a business credit history, some lenders may not be willing to lend to you.
To increase your chances of getting into college, you’ll need a detailed business plan that outlines your goals and how you plan to spend the money. It’s important to make sure the amount you want to borrow is affordable so you can keep the money back. A longer loan term can help reduce your monthly payments, but it also means you’ll have to pay more, making the loan more expensive in the long run.
11. Funds from financial development institutions
Another source of capital to finance new business is from development banks. For instance, in China, there is the Industrial Bank or the Agricultural. The bank has an annual interest rate of 5% to 10%. These conditions are more advantageous than commercial banks’ loans of up to 30%.
However, certain conditions and comprehensive documents are required to receive funds from these organizations. Just make sure your business meets these requirements.
Are you a producer who can benefit from credit support? Or you are a solar energy provider and can benefit from the N6 billion solar financing available from BOI. Take advantage of this financing, but keep in mind that you will still need real estate or real estate to qualify for some of these loans. This can be a huge hurdle for new and first-time entrepreneurs.
12. Funds from customer Revenue (Bootstrap)
The way to add money to your business is to front-load payments to customers. To achieve this from the beginning, you must identify paying customers at the beginning of your business and have products or solutions ready to be sold. This can be challenging for the product as a financial commitment is often required to produce the product before it is ready for sale.
Start by solving the problems you’ve identified that your customers are willing to pay for. The service is provided as a legal transaction. The money you save from customer service can be reinvested into your business for future growth.
This requires tight management and a good understanding of financial management – financial flows are the air the business breathes and reflect the way money flows in and out of the business.
Build trust and confidence with customers and ensure a constant flow of satisfied customers. This will keep more money invested in the solutions your business offers. Turn this money into your business.
13. Funds from institutional investors
Today, Nigeria is still a growing market for companies. Many investors (investors and private companies) want to invest in Nigeria’s growth opportunities. These companies are looking for some type of investment and return.
You should only approach investors if you are confident that the business you are trying to build will generate the kind of income these investors want. If expectations are not met you may encounter a lot of friction as you grow your business, especially when you leave part of the company in the form of injustice and loss of business management.
Make sure the investment company you choose to work with shares your vision for the company and understands its revenue. Besides private funds and funds, there are other investors such as NGOs and foundations who want to invest in businesses that follow certain social measures with the same people, business and environment.
The important thing here is to find partner, or group of people who believes in your vision and are ready to invest in it. The best investors bring their skills and collaborations as well as their invested capital.
14. Seek funds from microfinance bank
If you have a good credit score, you can get a small business loan from a financial institution. There are many microfinance banks in Nigeria that provide personal loans to small businesses. If you are unable to raise money for your small business through the other methods listed here, you may be able to find money from a microfinance bank.
Many small banks offer 7-figure personal and business loans with easy repayment plans. You can find business financing from these banks, do not let your business idea disappear due to lack of money.
One thing you should know when you go to these banks is that most banks require certain personal items from you in order to receive the money you borrowed from them.
Do remember to check out their repayment plans and interest rates before deciding.
Always remember that some of these smaller banks will want to see your business plan and other activities you have put in place to complete your business.
Generally speaking, I recommend taking out a loan from a small financial institution only as a last resort or when you have started a business but need money to develop your business and take it to the next level.
How do you choose the right financing options for your business idea?
To help you decide which financing option is right for your business, you need to consider how much money you actually need, including the costs of starting your business and your operating costs for the next year. You should make sure you have enough money to start a business, but you shouldn’t borrow more than you can repay, as this can lead to financial problems.
Then you should consider which of the above financial options will allow you to borrow money. Carefully review the different types of financing available and consider the pros and cons of each to help you decide which will be best.
Ask yourself if you would like to give money to partners in your business in exchange for their investment, or if you would like a traditional loan (which you will pay back with interest). If you want to apply for a business loan, check whether you can repay the loan easily. Note that South African government-backed car loans are unsecured and come with lower interest rates than business loans from mainstream lenders.
It is very important that the necessary procedures are taken into account. For example, if you are looking for a financial business, you must meet strict requirements to qualify. If you are not eligible, you should consider other options.
Likewise, if you have a fair business model, crowdfunding may not be the best route for you. Considering venturing into rental business, I have brainstormed 18 most profitable rental business ideas of 2024.
Conclusion
As a small business owner, there are many ways to finance your business, but the methods above are the best to help your business succeed. While all of the above microfinance options are good options, you should carefully consider the nature and size of your business before deciding to find any of them.
