Capital is a word that is etched into the mind of any individual trying to set up a business. It’s a common misconception that you only need capital at the start of a business. But, you do need money even when you’re trying to grow your business. Also, it’s essential to manage your funds accordingly.
Of course, if you’re low on funds, tools like unsecured business loans or loans on credit could help.
What Is Business Capital?
Business capital is the money present for the business to pay for its day-to-day activities. This may arise from the profits earned by the business or an investor. Additionally, your funds are also considered capital if they are utilised for the company.
Set-up costs differ based on different companies. For instance, if you want to set up a printing unit, you need to buy a machine first. Next, the substrates, inks, and other additional equipment are purchased.
As such, prioritising your expenses is easy. Just ask yourself this question: What are the items without which your unit cannot function? The answer will allow you to plan and manage your capital adequately.
Types of Business Loans
Maybe you aren’t able to amass enough capital. Or perhaps you’re unsure about the types of loans offered. Whatever the dilemma, it’s time to clear it up.
Loans can primarily be divided into two types:
Secured Business Loans
Generally, when you need a loan totalling a considerable amount, you need a secured loan. In this kind, you need to offer collateral of some sort to the lending body. Meanwhile, these loan options possess a relatively low-interest rate since you’re offering a guarantee to the lender.
Unsecured Business Loans
These types of loans are usually taken for smaller amounts. Additionally, they possess a higher interest rate. They’re also easy to get sanctioned since they require no collateral. Similarly, the loan approval process is easy and efficient.
How to Raise capital
Now that the distinction between secured and unsecured loans is clear, it’s time to look at the sources. You can obtain capital through various methods, namely:
Debt Funding
One of the most common methods used. Debt funding involves taking loans from small institutions, most notably banks. The loan needs to be paid back in regular payments, along with the agreed-upon interest.
Venture Capital Funds
Corporations or wealthy individuals generally run these funds. You can use them to obtain capital for your business. Besides, venture capitalists do not ask for repayment; instead, they claim equity in your business.
Angel Investors
These individuals have expertise in a specific field and are looking to invest. These investors provide a kick start to your business and can be counted on for further advice. As such, they either demand convertible debt or ownership equity.
Crowdfunding
In crowdfunding, a large group of people invests small amounts into your business. The expectations from the individuals are usually a reward or an equity share. As such, crowdfunding is not the most reliable method but can be kept as an option.
It is essential to know the value of your business before investing. The strengths and weaknesses need to be gauged, along with the future value. As such, if the investors see you being confident, they are more likely to invest in your idea. Meanwhile, it’s always a good idea to work on your presentation.