If you’re thinking about starting a business, you need to plan ahead and make sure that you can finance it properly. The best way to do this is by making sure that you have enough money in the bank to cover your initial expenses and keep your business running for at least six months until it becomes profitable. However, many new or small businesses don’t have that kind of cash on hand and so they turn to other sources of funding including loans from personal bank accounts or from friends and family as well as borrowing against assets such as property or vehicles.
Finance is important to a small business because it allows you to grow and thrive.
Financing can help you:
· Grow your business by expanding into new markets, buying equipment, and hiring new employees.
· Keep your doors open when times are tough by acquiring funding for working capital or unexpected expenses.
· Compete with larger competitors by offering more products or services at lower prices through economies of scale.
There are many types of finance for small businesses. The most common include:
· Loans and overdrafts, which are usually provided by a bank. They're available to all SMEs, regardless of size or age. You may have to pay a deposit or an arrangement fee and you'll have to pay interest on the loan's balance at the end of each month.
· Credit cards can be used by SMEs if they're approved by their bank as suitable borrowers (as determined by factors such as profitability). Most credit cards have no upper limit on what you can spend using them - which means that if you don't repay your balance in full each month, it could increase very quickly over time! This means that while credit cards can be useful if they help keep costs low and allow access to funds quickly when needed (e.g., in an emergency), they also carry high levels of risk for both businesses and customers alike."
If you run a business that makes money, it's possible for you to obtain finance from your business bank account. That is, if your business is solvent and has cash in the bank. For example, if you are a sole trader or partnership and have been trading for at least 12 months with no overdue debts (you'd need to check with the bank), then it's likely that any loans taken out would be secured against all assets of the company
· including its office equipment, stock holdings and premises.*
· Private equity: When a business is ready for growth and wants to expand, private equity is an option. This method can be expensive, but it's also one of the most common ways for SMEs to get funding.
· Venture capital: Venture capital comes from investors who are willing to fund high-risk projects with large potential returns. While it can be expensive and time-consuming, venture capital has been shown to generate high returns on investment when used correctly.
· Angel investors: An angel investor is someone who invests in early stage businesses as opposed to public companies or IPOs (initial public offerings). Angels typically provide money in exchange for partial ownership rights and may take part in decision making during their tenure as shareholders, which they can then sell back later if they choose not to remain involved with the company after all requisite steps have been taken by both parties involved before entering into such agreements; these agreements don't always involve equity compensation though since there may also be other forms such as loans or convertible bonds involved depending upon how much risk you're willing to take on yourself! However don't forget about other options like peer-to-peer lending platforms which allow people without much money themselves but who do have financial knowhow get involved too!"
There are four main sources of SME finance:
· From the bank - This includes overdrafts, loans and term loans. The bank will also consider other sources of income such as overdrafts, loans and term loans.
· From suppliers - Suppliers may be prepared to offer credit terms in return for prompt payment or other benefits such as early settlement discounts.
· From customers - Customers may offer credit terms in return for prompt payments or other benefits such as early settlement discounts.
· Other sources - These include leasing companies, invoice factoring companies and equipment hire companies (to name but a few).
Good finance planning and strategy is essential to the success of your business. With proper financial planning and strategy, you can ensure that your business’s needs are met and that it is growing at a healthy rate. In addition, by implementing a good financial plan, you will be able to maximize profits while minimizing costs and other expenses.
To ensure that your small business has a positive outlook going forward, it is important to implement a sound financial plan that includes these four variables:
· Good Finance Planning
· Proper Financial Strategy
· High Quality Financial Advice (i.e., from someone who knows what they're talking about) of course!
We hope you’ve found this guide useful for understanding the different types of finance available to SMEs, and how to go about finding the right one for your business. If you have any questions or would like more information on how we can help with your finance planning and strategy please get in touch.