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Getting your source of capital: How to finance your business

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If you have a profitable business idea, the next step is finding a source of capital to make it happen. Business capital refers to the funds that a company uses to finance its operations and expand its activities. Without it, you may not be able to cover the costs of getting a new company off the ground, including aspects like marketing, employee salaries, and inventory.

Launching a business can be exciting, but it is more important to do your finances and have a realistic understanding of the funds you'll need to get started. With the right resources in place, you can then focus on turning your great ideas into reality.​ Let's take a look at some of the different ways you can get funding for your new venture.

How to finance your business

1. Government grants

For starters, there are a number of government grants available to get your business up and running. Grants can be a great option for new businesses, provided you meet eligibility requirements and follow the application process correctly. These programmes can provide funding for start-up costs, specific training and other assistance.

2. Bank loans

Besides applying for government grants, you may also take out a loan from the bank. As they usually come with relatively low interest rates, this can help you keep your costs down as you start your business. Bank loans also offer predictable terms and repayment schedules, which can make it easier to plan for your business expenses in the short and long term. 

Note that you will need to present accurate financial records, cash flow forecast and business plan in order to get approval from the bank. As your business is a budding start-up, your personal credit history will also play a role in whether your application will be successful.

3. Hard money lenders

A hard money lender is a great option for businesses that need to secure funding quickly. Typically issued by private investors or companies, hard money lenders provide loans that are based on the value of the property being used as collateral, rather than the borrower's credit history. While hard money loans have higher interest rates than bank loans, they can be easier to obtain for borrowers with less-than-perfect credit.

However, because hard money loans are typically more expensive, it is crucial to make sure that you compare rates before taking out a loan.

4. Crowdfunding

Crowdfunding has become a popular way for entrepreneurs to raise money for a variety of projects. It can be a great way for businesses to get started as it allows them to obtain funding from a large number of people. One of the biggest advantages is that it allows businesses to test their products or services with the public before investing in them. This helps ensure that there is actually demand for what you are offering. 

Additionally, crowdfunding can help businesses build a community of supporters who are invested in the company's success – which can lead to increased sales once you launch. Some of the most popular crowdfunding platforms in New Zealand include PledgeMe, Snowball Effect and Givealittle.

Crowdfunding usually allows businesses to raise money without giving up equity or sacrificing control over their company, which can be the case if you are securing funding with an angel investor.  

5. Angel investors

Angel investors are usually affluent individuals who can provide the funds needed for a business start-up, and they can do so relatively quickly. The term "angel" is derived from the idea that these investors are willing to put their own money at risk to help a fledgling company grow and succeed. They may also be more forgiving when it comes to high-risk investments. Additionally, some may be experts in your industry and can provide mentorship opportunities, which can be invaluable for a small business.

If you are wondering how to attract someone to invest in your company, start by doing your finances first and develop a comprehensive business plan to prove your market potential. To find success with angel investors, it can make a difference when you already know your business inside and out.   

However, bear in mind that angel investors expect a percentage of equity in your company ranging between 10 to 50%. They may also expect a high return on their investment, which can put pressure on a young business that is still trying to grow and turn a profit. Furthermore, angel investors are essentially putting their own money into your business and they may – in turn – want a say in how it's run. With that in mind, you’ll have to consider whether you are agreeable with giving up some ownership stakes or control in the process while working with an angel investor.

6. Venture capitalists

Venture capitalists and angel investors are two very different types of investors. While both can provide the capital needed to get a business off the ground, they differ in their approach and expectations. Venture capitalists tend to invest larger sums of money and expect a bigger share in your business, while angel investors typically put in smaller amounts and have a more relaxed attitude towards their investment.

Venture capitalists also invest in high-growth companies with the aim of generating a return. It is for this reason that it can be difficult for start-up companies to attract venture capitalists. This is because the investors are looking to achieve a large return on their investment, and oftentimes young businesses do not have a solid track record yet. 

That being said, by understanding what venture capitalists are looking for first, you can put yourself in a better position to get funded.

Start growing your business

Once you have the financial flexibility to grow your business, the next course of action is to find a reliable delivery partner who can help you get your products or services to your customers. A good delivery partner will be able to handle all of the logistics for you, from picking up and delivering your products to tracking them along the way. This can free up your time to focus on other aspects of your business. 

More importantly, when customers know that they can count on your company to deliver their order quickly and accurately, they will be more likely to come back in the future. Start by opening an account with DHL Express today!

For more tips, learn how to set your e-commerce social media business up for success and use cloud computing to advance sales.