Financing options for Small and Medium Businesses

Financing options for Small and Medium Businesses

One major element of starting a business is Financing. Before any business can grow, capital must be generated and invested in the business. Sometimes, however, it is difficult for business owners to raise this capital by themselves. A business can access outside financing options. 

Some financing options for Small and Medium Businesses include:

•Online Loan: One of the easiest financing options for SMEs is online money lenders. This is different from a traditional bank and their systems of operation are a little different.

Some advantages online banking have include: The standards for approval are more flexible than traditional bank loans. You can access these loans from the comfort of your home. They are also usually faster to access than traditional bank loans. One setback might be the rate of interest which might be higher than in the case of a traditional bank loan. In the case of some online lenders also, the cost might not be transparent and might end up being more than a business can handle.

• Traditional Bank Loans: This is probably the most popular financing option for a business. It might be the best option for a well-qualified business as their interest rate might seem to be a more affordable option.  It might not be a convenient option for new businesses and startups or businesses without established business credit as they might not even qualify for it.

Some benefits include:  Interest rate might be lower than other options and it helps to build business credit. One challenge that might rise is the rigorous process of application and access to funds might take a while.

•Business Line of Credit:A line of credit is a flexible loan extended by a bank or any other financial institution to a business that the customer can access as needed and repay as long as the line is open. This option is flexible and can allow you to borrow multiple times from the same line of credit as you repay previous funds you borrow. You don't have to pay interest on money that your business does not use.

One drawback can be that the credit limit may not be up to the loan amount you could access with other financial options. It might also be expensive.

:This involves the process of funding a business or project by raising small amounts of capital from a large number of people. There are several options for crowdfunding that include:

  1. Debt Crowdfunding: This is the type of crowdfunding that you repay after a while. 
  2. Reward Crowdfunding:This involves giving something of value/ something beneficial in exchange for money. 
  3. Equity Crowdfunding:This one involves seeking investors. 
  4. Donation-based Crowdfunding: This is the most popular and the most rewarding because it is free. People give you of their own volition. 

One major advantage of Crowdfunding is that it helps you create awareness for your business. It might be difficult to attract an investor in the case of equity crowdfunding.

•Business Grants: This option is one of the best options for a business in the sense that it is "free money". Although it might be difficult to obtain because of the competition. Finding a business grant can require a lot of research and ultimately might be time-consuming. The major advantage is that you don't have to offer some equity from your business or repay and this can boost your profit.

•Invoice Financing:It is a financial transaction where a business sells its account receivable (invoice)  to a third party (a factor) at a discount. It is also known as invoice financing. In the case of invoice financing, a business has to incur the cost of the factor fee.

Invoice financing is great when working capital is tied up and there is a restriction on cash flow. A great advantage of invoice factoring is that you can easily qualify as it does not have a lot of requirements. Also, you can access the funds in a short period of time. Bridger does this really well, for more than 183 businesses so far

•Angel Investors: These are wealthy private investors focused on financing small business ventures in exchange for equity. The money an angel investor gives is not a loan but an investment but he expects a certain level of control in exchange and future earnings. An angel investor might have higher standards for the business especially if they are taking most of the risk.

•Personal funds: This is the money an individual can put together by themselves. This is usually done by personal savings.

•Loans from Family and Friends: A major way an individual can raise capital for a business is by looking to Family and Friends for a loan. 

Final Note

One of our major purposes at Bridger is to provide supply-chain financing for African businesses, of which Invoice financing is one.

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