Types of Business Financing: 5 Options and When to Use

When we have a business, the time comes when we realize that we need to invest more in order to keep growing. How to get working capital? How to invest in the expansion of the team and the stock? Is there a way to raise money to expand my market or insert new products into my portfolio? The need for credit is a reality for small and medium entrepreneurs. To meet this demand, there are different types of financing for companies.

Each type of business finance is designed for a different business need. You may be wanting to buy equipment, real estate, inventory, or just need some quick working capital.

In this guide, we detail the different types of financing for companies. The goal is to help you identify options and analyze which is best for your reality.

5 types of financing for small and medium enterprises

5 types of financing for small and medium enterprises

1. Investors

Investors

Investors are, in general, experienced entrepreneurs, who put their own money into early stage companies, hoping for a future return.

These investors have a minority share of the business they invest in, and not only do they contribute financially, but they also act as mentors in some cases.

The objective is to support, with its experience and capital, the development and consolidation of start-up companies, which have a high potential for growth.

Investors are betting on the success of these new deals.

This type of financing for companies is also positive, as it does not burden the cash flow with the payment of loan monthly payments.

2. Anticipation of receivables

Investors

Among the types of financing for companies, the anticipation of receivables, is the most recommended in most cases.

This is because, with anticipation, you will not be borrowing money by creating a debt, you will only be making a receipt, using money that is already yours.

For example, you made a sale on your credit card, gave a 30-day ticket to your customer, or accepted a check for 90 days. You do not have to wait all this time to get the money. You go to a securitizadora or factoring and anticipate this value. When the customer actually pays, the recipient will be the company that put the money to you.

Of course, there is an interest rate to be paid to the securitizadora or factoring, which, in general, revolves around 3 to 12%

Another benefit is the speed with which an anticipation of credit can be realized. After negotiating with the financial institution, you will receive the money almost immediately.

3. Crowding

loan

Crowdfunding is a fantastic alternative source of financing for companies that can not, or do not want to, qualify for traditional financing options such as bank loans.

It is a practice that uses the Internet to raise funds for new businesses or for businesses that want to expand.

In this type of business financing, the loan applicant accesses a platform that offers this type of possibility, creates an account and presents their idea, explains the mission of your organization, who you serve and the project for which you are requesting funds. You also indicate how much your collection goal is and how long.

If approved, the idea is disclosed and anyone who wants can contribute with various amounts.

When you reach the set amount, you will receive the money by paying a fee for the platform. For many crowdfunding platforms, if you do not reach your goal, you will not receive your funds.

Once you receive the funds, you can put them to use!

4. Bank Loans

Crowding

One of the most popular types of financing for companies is borrowing from banks.

While being the first choice of many business owners, resorting to the bank loan may have higher fees and interest than the other options offered.

You need to be aware of the total cost of the transaction (TSC) to really know how much you will be paying at the end of the installment.

  • Do a financial planning
  • Set the amounts required to apply for the loan
  • Plan the ceiling amount of the payment installment
  • Do a search among banks to compare rates, interest, fines and the CET of the loan

5. Online credit lines

Online credit

Fast and flexible capital. These are the main advantages of this type of financing for companies.

The basic concept of online lines of credit is to lend the whole requested money while you make the payment through monthly installments, with previously established amounts and with the rates of this loan, built-in.

Online lines of credit can be extremely beneficial to owners of small and medium-sized businesses who want capital to:

  • Obtain a monetary reserve
  • Make stock investment
  • Increase working capital
  • Expand your business
  • Heal unexpected expenses or emergencies.

The technology also allows the democratization of credit and proposes the establishment of a lower rate than those practiced by traditional financial institutions. 

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