This is a guest post by Umair Maqsood. You can follow Umair @UmairMaqsood on Twitter.
FINANCING BUSINESS GROWTH
No business activity can take place without money. The availability of sufficient funds or capital is one of the many factors that determines the growth and success of any business. Whether your business is in its initial or development stage or it is in its boom, without financing growth is limited. But where can the financing come from? This is a question that has always troubled entrepreneurs.
Sources of finance can be divided into two broad categories: internal sources and external sources with the latter having two further types, long term and short term.
Internal Sources of Finance
Internal sources are basically for running businesses that have been operating for a reasonable period of time. Following are some internal sources of finance:
- Retained Profits: Around 65% of all business funding comes from retained profit. This is the profit after tax that has not been returned to the owners. This is the cheapest source which obviously involves no repayments or interest charges.
- Disposal of Assets: an established business may be in the position to sell an asset that it no longer requires – for example surplus equipment or unused buildings – to raise funding. This makes a better use of tied up capital.
External Sources of Finance
Unlike internal sources, external sources of finance are used by developing businesses and established ones can make use of it as well. As mentioned earlier, external sources are divided into two further types: long term and short term sources.
LONG TERM FINANCING:
- Share Capital: this source is strictly applicable in limited companies. Issuance of different types of shares in the stock market is a great way to source funding.
- Long term Loans: Lending businesses offer loans and other facilities to businesses and individuals with a reasonable credit history and financial status. A certain rate of interest is charged on the amount. This source is widely used by businesses in their start up stage. There are some loan companies which lend against cash payables.
- Venture Capitalists: these are businesses, organisations or individuals that are prepared to invest in growing businesses, hoping for some return in the future.
- Mortgages: a mortgage is a loan from any financial institution like a bank where the lender must use land or property as a security against which the loan is approved.
SHORT TERM FINANCING:
- Debt Factoring: there are specialist agencies that buy a company’s debt in exchange for immediate cash. Through this method the risk of collecting the debt will be retained by the factor.
- Overdraft: this is a special facility provided by banks to its account holders in which the customer is permitted to withdraw excess of the funds that are actually available to him. This overdraft amount is sanctioned against a rate of interest charged on a daily basis.
Some people even try to finance their start-up or side business using a payday loan from a company like www.Speedy Loan.com payday loans because they provide quick cash overnight. These companies operate around the world and the rules regarding interest rates and repayment vary.
No matter what form of financing you choose, be sure you will be able to repay the amount borrowed or your business and credit rating will be at risk.
DISCLAIMER: This is NOT a paid post and no money or other value was received for publishing it.
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Your site is very informative and helpful. Thank you for sharing. I really liked your article writing.
keep the spirit
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Your site is very informative and helpful. Thank you for sharing.
The financial plan will tell you how much you need to start and maintain the business. As a rule, you must raise enough money to start up and sustain the business for a few months — six months to a year — while you are trying to introduce your product to the market.
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Nice post Umair, these are really clever ways to grow business
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Hello Umair,
Excellent post. You have rasied awesome points for increasing money.
I will try your methods for sure. How much luck do you have before ?
Thank you
Hi,
While am reading your blog it seems very good, nice information shared which is very helpful to me to delete my all negative things. Thanks to share this informative post.
Having a sufficient capital to fund a business is actually the driving force behind it. Most people resort to going to banks and lending institutions to get the capital that they need to get started but I guess we all need to exhaust all possible options first before doing this. Thanks for the informative share!
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Totally agree, lending, going to debt should be the last option. The easy way to gain more money fast is to create new product and promote it to our existing customer database.
All the ways you mentioned are really quite interesting and effective, but still we all should be very careful when the question deals with money, because a little mistake can damage everything
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Thanks for sharing this comprehensive guide, there are many facets to establishing a business but sourcing out funds for a possible business is by far the most critical task.
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October 27, 2012 at 7:08 pm
I personally think the best way to come up with money fast is to use your assets. We all have things that we can live without. So when it comes down to it, just look around and you will find a few things you can sell and make some fast cash with.
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Hi ..
After reading your blog it seems that i had made to much mistakes
Now I will try to overcome with those mistakes and try to follow your steps for the growth of my business
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Hi,
All the above mentioned tips are awesome and will work for sure. i always startup business for more challenges as its a good thing.
Hope your tips will work for my business
thanks
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to me, money matters a lot. these tips will helps me a lot. as we face lot of difficulties in business, your suggestions will show us the easier way to carry on our business. thank you very much.
Of all the methods you’ve listed, ideally you would want to get sufficient financing without incurring too much interest or giving up control of your company. Debt factoring is actually a great way to get capital in exchange to your receivables. It’s very effective if you’re having trouble collecting money from your clients. Overdraft, payday loans and mortgages will all incur high interest rates and should only be used as a last resort. Venture capitalists will likely ask you for a stake in your company in exchange for their investment, which will cause you to lose control of your company. One method you haven’t mentioned is government grants and subsidies. These wont always be possible, depending on the industry and the product/service your’e selling.
Hi,
For having stop by the post i realized it would be very helpful for novices. Managing money and growing it while in business is an art that comes with vigilance. One nice post to feed it into newbies at the initial stages. Will you please answer which of the external sources are more benefiting? Or it completely is a situation based approach to go for one?
regards,
sanjib
It is always better to start business with own saved money.
Just to be on safe side…
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There are so many ways to raise money for your business.While there are internal sources of finance,at the same time there are external sources such as share capital,long term loans,mortgages etc.As this article rightly explains some people even try to finance their start-up or side business using a payday loan.Finally It is very important to be able to repay whatever amount is borrowed from whichever sources.
Having a business is a good thing, though there are really times where we experience difficulties. Financing is one of the things that we hard especially when the business is still starting, I got my funds for my business through loans and up until now I am still paying the interest.
Growing a business is not an easy task at all. You will undergo many ups and downs before you can achieve the desired objectives. Your patience will always be tested.
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October 23, 2012 at 3:09 pm
I would be very careful of venture capitalists, they can wreck or steal your company and get you in trouble with the Federal Government.
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October 24, 2012 at 6:37 am
Hi Peter,
People need to be far more wary of ANY source of money because borrowing always puts your business and possibly even your home, everything you own, and your credit rating, at risk. We need to keep in mind that many have the goal of taking your property rather than helping you. Venture capitalists often want control of you and your company either with you working for them or them just taking your ideas and assets.
This is why it is so challenging to ever get ahead – because you don’t know who you can trust and usually find out the hard way that you should not trust most companies or people.
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