Finding the right funding for your business depends on your business needs, creditworthiness, and ability to repay.
If you are worried about making repayments with interest, private investment could be a great alternative to commercial business loans.
However, it is important to understand the expectations that come with private investment and the types of funding available.
Why choose private investment?
There are typically three types of funding options available for businesses. Choosing between loans, grants, and investments can seem tough.
However, when an investor puts money into your business, you won’t necessarily be expected to pay the investment amount like a loan.
Instead, as the investor is aware of the risk when they come on board, you will often agree to provide a percentage of your profits to your investor over a set period.
This means that if your business does well, the investor will make a good return, but they will make a loss if it does not.
What types of investments are there?
There is not just one form of private investment available. Depending on your business, there are various options available for you. These include:
· Angel investing is where investors financially support the start-up for your business in exchange for a portion of the profits or partial ownership. They also provide advice and business connections.
· Venture capital firms offer large sums to start-ups and high-growth companies for the promise of high returns. They usually require equity and significant influence over your business.
· Private equity investment focuses on larger and established businesses looking to expand, restructure, or transition ownership. In return, they require shares in the company.
· Crowdfunding is through online platforms where businesses raise small amounts of money from a lot of individuals. This often allows businesses to not give up equity or repay investments directly, although some platforms enable equity crowdfunding.
· Peer-to-peer lending allows businesses to receive loans from individuals. This removes the involvement of financial institutions to speed up the process and offer more flexibility.
Are you prepared to find investment?
You must be prepared when you decide to look for investment opportunities.
In order to secure an investor, you will often be expected to demonstrate a financial plan, proof that you can realistically make a profit and provide a return on the investments.
To do this, you should show:
· Financial projections
· Awareness of your market
· Good financial management
· A strong business strategy
· Your growth goals
· Proof that your business is ready for growth
Without this, your business is not likely to secure investment.
How do you manage your investment funds?
It is vital that you correctly allocate and manage the funds you receive from an investor.
Whilst some investors will provide free rein, others will ask that you demonstrate how you use their funding, and some could request to have a say in how their money is used.
No matter what their approach, it is key to keep and provide solid records to demonstrate you are correctly using the funding. This is often part of the legal requirements made between you and your investors.
If you are unsure if investment is right for you, it is best to seek business advice. An accountant can help you prepare, manage, and allocate your investments.
Get in touch with our team today for more help with funding your business.
