How to finance your new business

Ensuring you have adequate financing for your new business is one of the most important financial choices you will make when starting out. How you choose to finance your new business could be the determining factor of your success. It will also determine how you structure and run your company.

No matter the type of business you are starting, every new business plan starts with raising money to finance it. This money will cover all operational expenses to get the company up and running and provide your business with access to its working capital in the coming months, if planned correctly. So, what is the best way to finance your new business?

Fund your business with invoice financing

Especially for small and new businesses, invoice financing (also known as invoice factoring) is a unique type of funding for your short or long term goals. Invoice financing provides businesses with consistent cash flow to stay on top of all business expenses like paying employees, purchasing inventory, or expanding the business. A factoring company is a financial institution that purchases the accounts receivable to provide a business with cash advances, so they don’t need to wait for their vendors’ extended payment terms to get paid.

Businesses are typically approved in as little as 24 hours and can start sending in their invoices immediately. Invoice financing is different from a bank loan in that the money doesn’t need to be paid back, and there is no interest rate. The factor will advance the business up to 95% of the invoice amount the same day. Once the vendor pays the factor at the end of their payment terms, the factor sends the rest of the invoice, minus the factoring fee, to its client.

A factoring company will look at a business’s customers’ credit score before agreeing to factor those invoices to avoid working with bad debtors and risk not getting paid. A business’s credit isn’t usually a determining factor for a factoring company to approve or deny working with them. Invoice financing is one of the best and easiest ways to get funding for your new business.

Fund your business through investments

Another way to get financing for your new business is through investments. This way is more complicated and a lot more time-consuming. One way investors can fund your new business in the form of venture capital investments. A venture capital investment is typically offered in exchange for ownership or a share of company roles. If you are willing to give up some control and ownership of your business, venture capital investments could work for you. Angel investors are a great option if they can provide expertise in the industry and introduce you to contacts, on top of providing the funding.

Another type of investment is one from friends and family. Kind of like venture capital, some new businesses ask friends and family for an equity investment. This can be by selling them part of the company or using it as a business loan without going through the bank. The most significant issue with friends and family investment is risking your relationship with them when money is on the line.

Fund your business through a small business loan

You don’t need to give up any of your business when you get a small business loan. You will need to plan so you get the best possible chance of receiving the loan. Make sure you have an expense report and a five-year financial projection. This will help a bank understand your goals to approve your loan and give you an idea of how much you need to ask for. Contact banks and credit unions to find SBA loans (small business administration loans) to get the best possible one for your new business.

Credit cards and merchant cash advances are also other sources of business funding. With credit cards, you can earn discounts and rewards; however, they are tied directly to your credit. Using cash advances with your credit card can be expensive, as credit cards typically charge high rates and impose limits on advances. You do not want to overextend yourself from using a credit card.

If you need access to cash fast, your best option would be to work with an invoice financing company. There is no lengthy approval process and you can start financing your invoices right away. For more information to see if you qualify, click here or call us at (205) 397-1240.