It's essential to understand the pros and cons of each so you can make informed decisions. In this guide, we'll explore the most popular business funding options, including grants, bank loans, overdrafts, and investment finance.
Grants
Grants are sums of money given to businesses for specific projects or purposes. They can be obtained from the government, local authorities, and charities.
To apply for a grant, you'll need to:
- Show how you intend to use the money.
- Outline the benefits of your project.
- Provide a detailed business plan.
- Include full costing.
Bank Loans
Bank loans are a sum of money borrowed for a set period with an agreed-upon repayment schedule. The repayment amount depends on the size and duration of the loan. Banks typically charge interest on loans, and terms and costs vary between providers.
Overdrafts
An overdraft is a credit facility agreed upon with your bank that allows you to temporarily spend more than you have in your account to cover short-term financing needs.
You'll need to:
- Agree on an overdraft limit with your bank.
- Pay interest on any money used.
Investment Finance (Equity Finance)
Investment finance involves raising funds from external investors in exchange for a share of your business.
This option is best suited for businesses with
- Fast growth potential
- Strong management
- Clear strategies
- Innovative products and/or services
There are three common sources of investment finance:
1. Business Angels: Invest in businesses in exchange for shares of equity, typically investing between Rs. 10.00 lac and 1000.00 lac.
2. Crowdfunding: An alternative form of business angel investment, conducted online, allowing multiple investors to pool smaller amounts of money to help a business reach its target.
3. Venture capital: A form of private equity investment where a business obtains long-term investment in exchange for a share of its equity. Venture capitalists typically invest in businesses with ambitious but realistic business plans, unique and competitive products and services, high return on investment, and experienced management teams.
By understanding these funding options, you can make informed decisions about which route to take to support your business growth and success. An alternative form of business angel investment, conducted online, allowing multiple investors to pool smaller amounts of money to help a business reach its target.