Check Out The Types of Finances Available to Small Businesses

Check Out The Types of Finances Available to Small Businesses?

Every business, whether big or small, needs a strong source of finance for daily running expenses of
the business, acquiring assets, buying raw materials, administrative expenses, selling and distribution
overheads, etc. This source of finance is called the capital investment.

Whether an enterprise is a small business or a large one, depends upon the scale of production. The
capital requirement is also directly related to the size of the business – larger the business, higher
would be the capital required and vice versa. Small and medium enterprises though, require lesser
capital and funding. So, what are the options available for arranging the necessary business finance?

Have a look on some of the options:

Personal savings – whatever you have saved over the years is what you would typically resort to,
when you need to finance your business. Every entrepreneur, initially, uses his personal savings for
business funding. Usually, personal savings are not enough to fulfill the entire business requirement
and though it is the first resort, a businessman needs to look at other options of finance.

Business loans – W​ hen personal savings fall short of meeting the business funding requirements, the

next, most popular choice is opting for a business loan. Banks, financial institutions and more recently,

digital lending

companies grant

business loans to small

and medium-sized

businesses for financing

their operations. These

business loans are

granted based on the

business capacity, size of

operation and the

collateral secured.

Interest is charged on

the total amount of loan

borrowed. Business loans are available in various types. Personal loans, gold loans, loans against

securities, etc. are the different kinds of business loans which a businessman can avail.

Line of credit – This is like an overdraft facility. Banks and financial institutions allow small
businessmen to take an extended credit facility for their business funding. A small interest is charged
on the amount borrowed. The best part about this facility is that one can borrow as per his
requirement and pay interest on the actual amount borrowed.

Angel investors – I​ ndividuals with immense wealth are inclined to invest in small businesses which
have a potential for growth. In return for their investment, they usually hold a share of the business
and consequently get a share of the business profit too.

Venture capitalists – T​ he concept of venture capitalists is similar to angel investors, but they differ in
the size of funding. Venture capitalists also invest in small businesses and own a percentage of the
business but the size of their financial investment is higher compared to what angel investors invest.

Crowdfunding – Crowdfunding involves availing finance from a large number of people who
contribute a small portion of the capital each. This type of funding is usually done using the internet
and the people who finance the business include friends, relatives, individual investors, customers,
etc.

So,small businesses have a range of options available to them for funding their business. Though
business loans are popular, other avenues like angel investors and venture capitalists are also finding
their footing in today’s developing economy.

Ref: ​http://taxguru.in/finance/types-finances-small-businesses.html