The Essentials of Business Financing

By CIOReview | Thursday, January 31, 2019

Business financing comes to play once the business idea is researched and the plan is ironed out. Funding a business is a broad concept, and it can be used for various situations like starting a company, expansion of the current business or covering cash gaps. The company must understand their financing needs before selecting one from the financing options. Funds can come from a bank, a group of investors, or personal financing. However, the allocation of funds in specific terms must be mapped out.  

Vital Aspects of Business Financing

For a growing startup sustaining in a small place is difficult. An office space, warehouse, or workshop is imperative for future growth. While making a financing plan, renting or buying should be kept in mind. A company cannot run without people and hiring executives, senior management, or high-level tech gurus costs a lot of money. The company has to post jobs, work with recruiters or consultants, and run background checks for the employees that are about to be hired. Thus, the hiring process is a vital part of business financing.

Inventory takes a huge chunk of funding. Maintain a list of all the equipment. After all the tangible aspects, comes one of the most critical parts of the business — the customer journey. Providing an excellent customer experience is a part of the success of any business. When mapping out the expenses, customer journey has to be included in business financing.      

Types of Funding

There are mainly three types of business funding – equity financing, debt financing, and bootstrapping. A company’s business model, goals, and resources decide what type of funding is the best for them.

Equity Financing

In equity financing, a part of the business is sold to the investors in exchange for funding. This is also known as angel investing, and there’s no loan, interest, or repayment involved in it. Angel investors finance a startup and in exchange take a portion of the business. There is no repayment involved in equity financing; however, the company has to relinquish a part of the business to the investors. While some investors don’t get involved in the decision-making, some prefer to be included in the process.

Debt Financing

Debt financing is nothing but borrowing money from a bank or a friend. The amount borrowed must be paid back with interest if the amount is borrowed from a bank. Debt financing gives the owner complete control over the business.  

Bootstrapping

Bootstrapping means relying on personal finances to get the business off the ground without being in debt to anyone. The owner is in complete control of the company, but it can be hard especially if the personal resources are limited.