Most ambitious enterprise owners have great ideas for their business activities, but they often lack the capital needed to initiate operations. When it comes to access to funding, they seek common financing sources in the form of bank loans, ignoring other funding channels, which may be more useful and easier.
In this article, we familiarize enterprise owners with various sources of financing, in addition to bank loans.
This form of financing is very popular among entrepreneurs who consider it a perfect alternative to traditional commercial loans. These online platforms quickly process transactions as loan applications could be completed in only one hour, while the loan may be approved and the cash obtained only within few days.
Former U.S. Secretary of Treasury Lawrence Summers predicted that the number of online lenders will reach 70% due to the speed and ease of access to such type of loans.
Mass or Crowd funding:
This form of financing was uncommon five or six years ago, but gained popularity in today’s business world especially after the wide spread emergence of social media.
Crowd funding involves promoting a business idea through specialized crowd funding websites for a specific period. If investors like the idea, they can invest in or finance the project or even provide donations (in accordance with the policy of the website). Then, the project owner obtains the required amount or part thereof.
The most popular International crowd funding platforms include Kickstarter and Indiegogo, while Arab platforms include Zoomaal and Yomken.
These funding platforms enable business owners to collect small investments by mobilizing several investors instead of seeking funds from only one investor.
Another source of financing that recently emerged amid the growth in the global entrepreneurship movement is business incubators whose main purpose is to support pilot project.
Incubators focus more on assisting businesses grow rather than provide financing. Forms of assistance include:
– Simple financing for specific aspects of startups.
– Providing office spaces for startups which lack a headquarter.
– Providing professional and consultancy services for startups, in order to grow the business and generate profits.
The early stages of launching a pilot project are often critical, difficult and paved with challenges. Accordingly business incubators are considered a perfect solution for incubating startups, cutting costs and providing technical and professional support.
Identify business incubators in the State of Qatar.
Personal financing involves paying your business expenses from your own money. The benefits of such form of financing is that you will retain 100% business ownership, and you will reserve all rights to fully manage your business activity in future. However, most ambitious youth do lack the sufficient funds to launch their business, which explains why this form of financing is unusual.
An “Angel Investor” is a person with considerable assets who regularly seeks investments in early stage companies in exchange for share. Financing usually ranges from USD 25,000 to 100,000 or more.
Such forms of financing have different aspect. It is not only a financial investment only but rather extends to providing technical support and professional consultancy in addition to assisting in public relations. Often angel investors adopt the project in line with an agreement between the entrepreneur and investor.
Angel Investor often channel funds into a pilot project only after assessing the project and reviewing the business plan and progress achieved since the launch of the project (self-financing stage) as well as assessing the growth potential after making the investment.
Most large companies and wealthy individuals across the world act as Angel Investors, supporting startups and adopting them.
Venture capital are funds owned by individuals or companies with significant capital invested risky businesses or startups.
Venture investors are usually professional investors who scrutinize and accurately assess a business while being aware of high risk of failure. Accordingly, the characteristics of this form of finance include:
– The business seeking funds should be innovative with significant profit prospects despite significant risks.
– Venture investors usually contribute significant investments; accordingly, they will require higher returns than any other investment or large share ownership in your startup.
– Seeking funds from venture capital investors is difficult and requires detailed business plans in order to convince investors to pump money into your business.