Business Capital Financing
Business capital and financing are essential to running your business and essentially turning over profits. But the biggest problem most entrepreneurs in the UK face is not just raising the business capital and financing the business, but also knowing where exactly to look for this business capital and financing.
In this blog we’ll explore:
- What is business capital and financing
- Business capital vs business financing
- How to raise capital
- How to finance your business
What is business capital and financing
Even large scale businesses often turn to financing. For small businesses, finding a suitable funding model is vitally important. Take money from the wrong source, and you may lose part of your company or find yourself locked into repayment terms that impair your growth for many years into the future.
From loans, investors, grants, angel investors, crowdfunding & venture capitalists, identifying the best type of business financing for your startup is crucial to its success.
Capital on the other hand is a broad term that can describe anything that acts as or adds value or benefit to the business, such as a factory and its machinery, intellectual property like patents, or the financial assets of a business or an individual.
While money itself may be seen as capital, capital is more often associated with cash that is being put to work for productive or investment purposes. Cash with a purpose.
Business capital vs business financing
Financing a business is the process of bringing money into a company. Usually this means taking on debt to secure this financing and by taking advantage of credit arrangements. That pretty much sounds like a loan, doesn’t it? Yes, but it’s not quite a loan. The common factor between business finance and capital is that both are forms of securing funds externally.
In general, business capital is a critical component of running a business from day to day and financing its future growth. Business capital may derive from the operations of the business or be raised from debt or equity financing.
When budgeting, businesses of all kinds typically focus on three types of capital: working capital, equity capital, and debt capital.
Types of capital:
- Debt Capital: A business can acquire capital by borrowing funds. This is debt capital, and it can be obtained through private or government sources. For more seasoned companies, this most often means borrowing from banks and other financial institutions or issuing bonds. For small businesses starting on a tight budget, sources of capital may include friends and family, online lenders, credit card companies, and more.
- Equity Capital: Equity capital can come in multiple forms. These include private equity, public equity, and real estate equity. Private and public equity will usually be structured in the form of shares of stock in the company. The only distinction here is that public equity is raised by listing the company’s shares on a stock exchange while private equity is raised among a closed group of investors.
- Working Capital: A company’s working capital is its liquid capital assets available for fulfilling daily obligations. Working capital measures a company’s short-term liquidity. More specifically, it represents its ability to cover its debts, accounts payable, and other obligations that are due within one year.
How to raise capital
First of all, raising business capital and financing allows you to scale and enable growth. Startups spend their funding on growth, marketing, and most likely staff and team expansion. These three areas are critical to the success of any startup.
If a startup is going to use savings or personal funds, then the best way to spend their funding would be on a couple of things. The first thing they might invest in is tangible assets that will generate the most value over time. Getting a third-party or external investor gives you options along with additional funds.
The funds given to you by investors can easily be used to build brand awareness and better your product or service offering. Ideally the goal is to make that money back along with some profit. The best way to do that is by focusing on adding value and getting out there. Business capital and financing solutions give you that flexibility.
An option to consider is bootstrapping. Provided that your business isn’t operating in an industry that requires lots of startup capital, like manufacturing or transportation, you can potentially fund your own venture—and it may be more feasible than you think. To put it plainly, financing your business using funds that you’ve personally gathered without any external sources or assistance. If you’re starting up a company with whatever money you have on hand and from the profits you’re earning, that’s bootstrapping.
Another option to consider is crowdfunding through Drop Studio. This is one of the most popular ways to attract funding for your startup in the UK, with a range of platforms offering different models of investment.
Crowdfunding gives your startup an opportunity to not only simultaneously raise money and generate publicity, but also to gauge interest in a product and develop it as the business grows. Reach out to Drop Funding and let’s see how we can assist.
How to finance your business
You have a host of options to choose from when it comes to getting business finance for your business. Some more faster and efficient than others. From loans, investors, grants, angel investors, crowdfunding & venture capitalists, identifying the best type of funding for your startup is crucial to its success.
Normally when you apply for a loan, the bank will ask for supporting documents such as a business plan, cashflow analysis and profit and loss forecast, and is likely to want to meet you in person before deciding whether or not to grant you the loan. Banks take a host of factors into account before granting loans.
Banks prefer lending to existing businesses with a strong track record. You can borrow as much money as the bank is prepared to lend you. This typically will be determined by your ability to pay it back and how much security you’re able to put up against the loan.
Another option is approaching venture capitalists. A venture capitalist is an investor who funds small startups with very high growth potential.
Almost every notable startup success story involves a VC, you could be next. A venture capital fund is a type of private equity fund that is funded by private and institutional investors like investment banks, insurance companies, and pension funds.
Venture capital investors in the UK contribute investment to tiny or start-up businesses with high development potential.
We can’t wait to help your business scale. We look forward to helping you secure your business capital and financing. Get in touch with our growth consultants for a free consultation and let’s get you started!