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1 Chapter 1 : The Sources of Finance Available to a Business blog.quintoapp.com Angels tend to finance the early stages of the business with investments in the order of $25, to $, Institutional venture capitalists prefer larger investments, in the order of $1,, In exchange for risking their money, they reserve the right to supervise the company's management practices. We will discuss how to raise fund for business in Nigeria in this article. The expenses incurred include; a. In some cases this may also include payment for training. Business needs minimum level of cash to run. Payment for fixed assets which may include land, land development, furniture, financial management software, equipments etc. All these expenses highlighted above are to be met; the value however, depends on the sophistication of operation. How does Entrepreneurs Source for Funding in Nigeria? An entrepreneur can source for fund through 1. It is also called risk capital. This is the most reliable source of funding in business. For it put less pressure on the entrepreneur even if the business failed. This money is raised from past savings of the entrepreneur. It may be contribution from friends, relations etc. The important thing is that there is no commitment of repayment on the entrepreneur. This is a facility given to the entrepreneur with obligation to pay the sum and accrued interest at an agreed date, This can be sourced from the private sources or financial institutions such as microfinance houses or commercial banks, It is not the best source of financing new business, because the payment put pressure on the entrepreneur and the business, Where it could not be totally avoided entrepreneur should be careful in taking it. Types Of Loans And Facilities 1. This is the type of loans with repayment period of less than six calendar months. This is the popular type offered by micro banks and venture capitalist. They are usually sourced to finance working capital and ventures with short term gestation. They usually attract payment of interest at high rate. The duration of payment for this facility does not exceed twelve months. Both commercial banks and micro finance institutions are reluctant to grant this type of facility because they need fund to run their own businesses. They avoid anything that will tie down their article of trade money. This type of facility is repaid after two years or more. It is sourced for capital projects, it is usually provided by specialized banks such as Bank of Industry, NEXIM etc; small scale business entrepreneur may not be able to access this type of loan because of stringent conditions attached to it. It is an arrangement between the bank and it customers to withdraw above the balance in the account. It is approved from the appropriate authority in the bank. It is usually for few days or weeks. Micro finance and commercial banks offer this type of facility which is subject to renewal. This is a practice whereby two or more lending financial institutions agreed to provide fund to finance large project, usually a consortium of banks as creditors package such loan with one of the banks as the leading bank. This refers to different trade arrangement between sellers and buyers whereby payment for goods purchased is postponed till agreed date. Small scale entrepreneurs are encouraged to belong to their associations to enjoy this facility. This arrangement checkmate diversion of credit to other uses. Grants Government and non-government organizations sometimes give grants to potential entrepreneurs to start small businesses. This is an allowance that a government or an organization gives to support small business creation in the country. Examples include grants given by EcoBank, GTB, state and local governments through their different youth empowerment programmes. Since loan is to be repaid, financial institutions are very careful to part with the fund put in their trust by the shareholders. The prospective borrower is expected to come up with convincing business plan or feasibility plan. This is a comprehensive, detailed document that will show the viability of the project for which the loan is being sourced for. The document will show among other things. The profile of the entrepreneur ii. Description of the product or services being rendered iii. Technical profile of the business iv. Page 1

2 Chapter 2 : What type of funding options are available to a private company? Investopedia There are myriad financing sources available for American entrepreneurs (see Handbook of Business Finance at blog.quintoapp.com). Here are the 12 best, from least attractive to most. Here are. Sources of Finance for a Sole Trader by Kevin Sandler - Updated September 26, The ability of a sole trader is relatively limited when compared to a private or public company. The sole trader has multiple options for extending his finances and preventing dilution of ownership while continuing to fulfil his financial needs. The sole trader may utilize his personal capital, retained profits, sale of assets, sale and lease back, loans or credit lines from banks and hire purchase. However, the sole trader must understand that an expanding business will have to eventually agree to dilute ownership since these strategies are only delay tactics. Personal Capital The sole trader can invest his own savings into his business for expansion. A sole trader who is confident about the future prospects of his business may be prepared to invest additional savings into the business for expansion. This prevents him from the burden of interest payments and allows him to retain full control over the business. Retained Profit A profitable business generates a positive net income every year. Instead of drawing out large sums of money, a sole trader may opt to retain the earnings for business expansion. This could be a property registered in the name of the business. The sole trader may rent an office and use the sale proceeds to expand his business. Sale and Lease Back If the sole trader does not have any other assets to sell, he may decide to sell an asset or a property and lease it back from the buyer. This helps him to retain the same business address and continue business as normal while raising capital for expansion. Loans and Credit Lines from Banks The sole trader can approach a bank or a financial institution to apply for a loan. This could include a business loan, a credit line, credit cards, trade credit and a mortgage. Trade credit and credit cards are preferred by sole traders as these will usually not require a mortgage of the business assets. Trade credit is mostly secured against the accounts receivable and the work in progress of the sole trader. Hire Purchase This sole trader may acquire a certain asset through hire purchase by paying a proportion of the value as down payment and paying a rental on the remaining value until the full payment has been cleared. Hire purchase provisions are often available on purchases of machinery or similar assets. References "Essentials for Management"; Harold Kontz and Heinz Weihrich; "Encyclopedia of Finance"; Cheng Lee and Alice Lee; About the Author Kevin Sandler started his writing career as an academic researcher in, and has since than been involved in writing for various magazines and academic specialists including Academic Knowledge, Scholastic Experts and ehow, among others. His specialities include personal finance, investments, business and project management. He has a Master of Science in finance from Tulane University, and is actively involved in the finance profession. Photo Credits businessman image by Christopher Hall from Fotolia. Page 2

3 Chapter 3 : Sources of Finance Available to a Global Business Bizfluent Bank Loan. Banks and credit unions offer loans to large and small businesses. When companies take out a loan from a bank, they have access to a set amount of money, but are obligated to the bank. Understanding the Sources of Finance Available to a Business Understanding the Sources of Finance Available to a Business Introduction The main purpose of this paper is to show the importance of source of finance available to a business. Finance is a very important factor in any business. A business needs finance in order to make improvement in it. There are many sources through which a company can receive its finance, and increase its capital. Discussion Finance is the life blood of any business. For any business, there is great importance of finance. In order to acquire the finance, businesses seek for different sources. Understanding Sources of Finance available for Business The most important thing to run the business is finance. The core limiting factor for business is finance, and hence, the manager must manage the financial resources properly. There are two major sources of finance for business. These include internal and external sources. The business managers decide which form of financing to be used in the business Klammer,, pp. Both the internal and the external source of finance have its own merits and demerits Lumijarv, i, p. The classification of sources of finance is dependent on various factors. Identify Sources of Finance available for Business There are three major types of funding options available to small businesses. The debt financing refers to the availability of credit or loans to the small businesses. A business that has a good credit reputation in the market will not find it hard to get the required amount of credit. However, this cost of borrowing money has to be compared with the cost of equity financing for cost benefit analysis Klammer,, pp. Equity financing for a small businesses may mean as one coming from friends and family and those that can be attained through angel investors. This also includes the venture capitalists. Grants refer to the money that is got through a state or a regulatory authority for small businesses. These regulatory bodies usually provide grants to small businesses in an attempt to facilitate their operations and boast the economy as a whole Lumijarvi,, pp. It is vital to state here that each of the funding options stated earlier has its own pros and cons. The small business should consider these advantages and disadvantages before choosing to opt for a certain funding option. Assess the Implications of Different Sources There are many sources of finance available to a business. When choosing an appropriate source of finance some factors Page 3

4 Chapter 4 : Sources of Business Financing for Entrepreneurs Personal sources These are the most important sources of finance for a start-up, and we deal with them in more detail in a later section. Retained profits This is the cash that is generated by the business when it trades profitably - another important source of finance for any business, large or small. Ordinary equity shares Ordinary shares are issued to the owners of a company. Deferred ordinary shares are a form of ordinary shares, which are entitled to a dividend only after a certain date or if profits rise above a certain amount. Voting rights might also differ from those attached to other ordinary shares. Ordinary shareholders put funds into their company: Simply retaining profits, instead of paying them out in the form of dividends, offers an important, simple low-cost source of finance, although this method may not provide enough funds, for example, if the firm is seeking to grow. A new issue of shares might be made in a variety of different circumstances: If it issues ordinary shares for cash, should the shares be issued pro rata to existing shareholders, so that control or ownership of the company is not affected? If, for example, a company with, ordinary shares in issue decides to issue 50, new shares to raise cash, should it offer the new shares to existing shareholders, or should it sell them to new shareholders instead? In the example above, the 50, shares would be issued as a one-in-four rights issue, by offering shareholders one new share for every four shares they currently hold. New shares issues A company seeking to obtain additional equity funds may be: The methods by which an unquoted company can obtain a quotation on the stock market are: An offer for sale is a means of selling the shares of a company to the public. All the shares in the company, not just the new ones, would then become marketable. When this occurs, the company is not raising any new funds, but just providing a wider market for its existing shares all of which would become marketable, and giving existing shareholders the chance to cash in some or all of their investment in their company. A smaller issue is more likely to be a placing, since the amount to be raised can be obtained more cheaply if the issuing house or other sponsoring firm approaches selected institutional investors privately. Rights issues A rights issue provides a way of raising new share capital by means of an offer to existing shareholders, inviting them to subscribe cash for new shares in proportion to their existing holdings. For example, a rights issue on a one-for-four basis at c per share would mean that a company is inviting its existing shareholders to subscribe for one new share for every four shares they hold, at a price of c per new share. A company making a rights issue must set a price which is low enough to secure the acceptance of shareholders, who are being asked to provide extra funds, but not too low, so as to avoid excessive dilution of the earnings per share. Preference shares Preference shares have a fixed percentage dividend before any dividend is paid to the ordinary shareholders. The arrears of dividend on cumulative preference shares must be paid before any dividend is paid to the ordinary shareholders. Redeemable preference shares are normally treated as debt when gearing is calculated. However, dividend payments on preference shares are not tax deductible in the way that interest payments on debt are. Furthermore, for preference shares to be attractive to investors, the level of payment needs to be higher than for interest on debt to compensate for the additional risks. For the investor, preference shares are less attractive than loan stock because: Loan stock Loan stock is long-term debt capital raised by a company for which interest is paid, usually half yearly and at a fixed rate. Holders of loan stock are therefore long-term creditors of the company. Loan stock has a nominal value, which is the debt owed by the company, and interest is paid at a stated "coupon yield" on this amount. The rate quoted is the gross rate, before tax. Debentures are a form of loan stock, legally defined as the written acknowledgement of a debt incurred by a company, normally containing provisions about the payment of interest and the eventual repayment of capital. Debentures with a floating rate of interest These are debentures for which the coupon rate of interest can be changed by the issuer, in accordance with changes in market rates of interest. They may be attractive to both lenders and borrowers when interest rates are volatile. Security Loan stock and debentures will often be secured. Security may take the form of either a fixed charge or a floating charge. The company would be able, however, to dispose of its assets as it chose until a default took place. In the event of a default, the lender would probably appoint a receiver to run the company rather than lay claim to a particular asset. The redemption of loan stock Page 4

5 Loan stock and debentures are usually redeemable. They are issued for a term of ten years or more, and perhaps 25 to 30 years. At the end of this period, they will "mature" and become redeemable at par or possibly at a value above par. Most redeemable stocks have an earliest and latest redemption date. The issuing company can choose the date. The decision by a company when to redeem a debt will depend on: Mortgages are a specific type of secured loan. Companies place the title deeds of freehold or long leasehold property as security with an insurance company or mortgage broker and receive cash on loan, usually repayable over a specified period. Most organisations owning property which is unencumbered by any charge should be able to obtain a mortgage up to two thirds of the value of the property. As far as companies are concerned, debt capital is a potentially attractive source of finance because interest charges reduce the profits chargeable to corporation tax. Retained earnings For any company, the amount of earnings retained within the business has a direct impact on the amount of dividends. Profit re-invested as retained earnings is profit that could have been paid as a dividend. The major reasons for using retained earnings to finance new investments, rather than to pay higher dividends and then raise new equity for the new investments, are as follows: However, it is true that the use of retained earnings as a source of funds does not lead to a payment of cash. From their standpoint, retained earnings are an attractive source of finance because investment projects can be undertaken without involving either the shareholders or any outsiders. If, for example, because of taxation considerations, they would rather make a capital profit which will only be taxed when shares are sold than receive current income, then finance through retained earnings would be preferred to other methods. A company must restrict its self-financing through retained profits because shareholders should be paid a reasonable dividend, in line with realistic expectations, even if the directors would rather keep the funds for re-investing. At the same time, a company that is looking for extra funds will not be expected by investors such as banks to pay generous dividends, nor over-generous salaries to owner-directors. Borrowings from banks are an important source of finance to companies. Bank lending is still mainly short term, although medium-term lending is quite common these days. Short term lending may be in the form of: Interest is charged at a variable rate on the amount by which the company is overdrawn from day to day; b a short-term loan, for up to three years. Medium-term loans are loans for a period of from three to ten years. The rate of interest charged on medium-term bank lending to large companies will be a set margin, with the size of the margin depending on the credit standing and riskiness of the borrower. A loan may have a fixed rate of interest or a variable interest rate, so that the rate of interest charged will be adjusted every three, six, nine or twelve months in line with recent movements in the Base Lending Rate. Lending on overdraft is always at a variable rate. A loan at a variable rate of interest is sometimes referred to as a floating rate loan. Longer-term bank loans will sometimes be available, usually for the purchase of property, where the loan takes the form of a mortgage. When a banker is asked by a business customer for a loan or overdraft facility, he will consider several factors, known commonly by the mnemonic PARTS. Page 5

6 Chapter 5 : Sources of Finance: Debt vs. Equity finance blog.quintoapp.com Perhaps one of the most popular sources of finance for a business, a business loan is a sum of money borrowed from an organisation in order to fund your business' growth. As with all loans you'll be required to pay it back, along with interest - but you won't have to give up any equity to the organisation. Similar to public companies, private companies also need funding for various reasons. A business typically needs the greatest amount of financing during the startup and growth phases, but it may also require a cash infusion for research and development, new equipment or inventory. While funding options for private companies are numerous, each choice comes with various stipulations. Money from personal savings; friends and family; bank loans; private equity through angel investors; and venture capitalists are all options for funding throughout the life cycle of a private company. Friends and Family In the early stages of a private company, personal resources are used to finance business operations. Pulling from savings, taking a distribution from a retirement account or taking out a second mortgage on a residence are common among new business owners. Once financing from personal resources dries up, owners may find funding opportunities among friends and family members. Additionally, friends and family who invest in the business do not often take an active role in operations. Bank Loans Conventional lending through a financial institution such as a bank or credit union is available for a private business that can provide proof of a strong financial track record. A conventional bank loan may require owners to show revenue sources, profit levels and detailed business plans prior to approving a loan, and as such is not appropriate for all private companies. For instance, a private business in the startup phase does not qualify for financing from a bank, nor does an established company that shows losses each year. However, bank loans provide a smart source of financing to developed businesses and allow for extended repayment over time with predictable fixed monthly payments. Angel Investors An angel investor is typically a high net worth individual who lends funds in exchange for an ownership stake in the company. Because of the equity position within the company, angel investors are more likely to provide substantial amounts of capital when they find a business in which they want to invest. Most angel investors are professionals in private equity, meaning the business seeking funding must pitch its need for financing along with current financial statements, its business plan and a viable exit strategy. Angel investors most commonly work with companies that have exponential growth potential and a desire to transition from private to public in the future. Venture Capital A venture capitalist is similar to an angel investor. This is a group of high or ultra high net worth individuals or a company that manages the assets of those individuals. Similar to angel investors, venture capitalists invest in companies with a strong track record of revenue and potential for extreme growth over time but also require an active role in business operations. Venture capitalists require an exit strategy, which makes this financing option best for companies that plan to go public or sell to another company in the future. Page 6

7 Chapter 6 : 7 start-up financing sources for your business blog.quintoapp.com Short term Sources of finance is defined as money raises for investment in business for a period of less than one year, it is also named as working capital or circulating capital or revolving capital. Businesses require capital to fund their endeavors, which generate revenue. However, not all businesses have instant access to money. Bank Loan Banks and credit unions offer loans to large and small businesses. To apply for a bank loan, business owners must provide the financial institution with a proposal for why the funding is necessary, as well as evidence that the business will succeed. Business loans are not guaranteed to every applicant, however. A March article by Karin Price Mueller in Entrepreneur magazine explains that traditional bank loans can be difficult -- even next to impossible -- to get due to tightened underwriting policies. As such, the article recommends that business owners be creative with alternative financing options. Home Equity Line of Credit If a business owner also owns a home, he can apply for a home equity line of credit. Home equity lines of credit are loans that financial institutions give homeowners based on how much equity they have in their home, the value of their home and their current mortgage. Once applicants are approved for home equity lines of credit, they have immediate access to funds. Beware of fluctuating interest rates, as an August publication by the Federal Reserve Board notes that the interest rates on home equity lines of credit are typically variable. A variable interest rate adjusts based on the economic value index. As such, taking out this type of loan requires business owners to closely monitor their interest rate. Find an Investor Investor groups or private investors seek out companies that need financial assistance. The two main types of investors are venture capitalists and angel investors. Investors provide businesses with capital in exchange for partial ownership in the company. Rather than charging interest on the amount of money loaned to the business, investors want a share of the profit. Your Own Money If business owners have savings accounts or retirement accounts, they can utilize another financing source known as "bootstrapping," which is when a business owner uses personal resources to finance her business endeavors. Personal resources are the primary source of funding for most new entrepreneurs, the Small Business Administration says. This also includes the use of personal credit cards. However, credit cards have high interest rates, so it is best to utilize credit cards for short-term investments that will be paid off quickly. Page 7

8 Chapter 7 : Sources of Business Financing BOYNECLARKE LLP Once the business is underway and proï t and loss statements, cash ï ows budgets, and net worth statements are provided, the company may be able to borrow additional funds. Commercial Finance Companies Commercial ï nance companies may be considered when the business is unable to secure financing from other commercial sources. When starting a business, your first investor should be yourselfâ either with your own cash or with collateral on your assets. This proves to investors and bankers that you have a long-term commitment to your project and that you are ready to take risks. Love money This is money loaned by a spouse, parents, family or friends. Investors and bankers considers this as " patient capital ", which is money that will be repaid later as your business profits increase. When borrowing love money, you should be aware that: Family and friends rarely have much capital They may want to have equity in your business A business relationship with family or friends should never be taken lightly The first thing to keep in mind is that venture capital is not necessarily for all entrepreneurs. Right from the start, you should be aware that venture capitalists are looking for technology-driven businesses and companies with high-growth potential in sectors such as information technology, communications and biotechnology. Venture capitalists take an equity position in the company to help it carry out a promising but higher risk project. This involves giving up some ownership or equity in your business to an external party. Venture capitalists also expect a healthy return on their investment, often generated when the business starts selling shares to the public. Be sure to look for investors who bring relevant experience and knowledge to your business. BDC has a venture capital team that supports leading-edge companies strategically positioned in a promising market. Like most other venture capital companies, it gets involved in start-ups with high-growth potential, preferring to focus on major interventions when a company needs a large amount of financing to get established in its market. Angels Angels are generally wealthy individuals or retired company executives who invest directly in small firms owned by others. In concrete terms, this often involves a seat on the board of directors and an assurance of transparency. Angels tend to keep a low profile. To meet them, you have to contact specialized associations or search websites on angels. However, there are also local economic development incubators, which are focused on areas such as job creation, revitalization and hosting and sharing services. Commonly, incubators will invite future businesses and other fledgling companies to share their premises, as well as their administrative, logistical and technical resources. For example, an incubator might share the use of its laboratories so that a new business can develop and test its products more cheaply before beginning production. Businesses that receive this kind of support often operate within state-of-the-art sectors such as biotechnology, information technology, multimedia, or industrial technology. MaRS â an innovation hub in Toronto â has a selective list of business incubators in Canada, plus links to other resources on its website. Government grants and subsidies Government agencies provide financing such as grants and subsidies that may be available to your business. The Canada Business Network website provides a comprehensive listing of various government programs at the federal and provincial level. Page 8

9 Chapter 8 : Sources of Finance in Business Types of Business Finance The bank isn't your only source of finance. One of the following resources may work better for you and your business: Crowdfunding. Crowdfunding is a great option if you've already got strong networks and want to build loyalty before you start. I understand that completing this form does not create a lawyer-client relationship This iframe contains the logic required to handle Ajax powered Gravity Forms. Sources of Business Financing One of the most important issues facing all businesses, whether a business in the start-up phase or well-established, is the obtaining of appropriate levels of financing. Whether it is needed for investing in land, buildings or equipment, hiring new employees, investing in inventory or moving into new markets, obtaining sufficient financing to accomplish these goals is a dilemma nearly all business owners face. This law letter will provide a general overview of various sources of financing available to businesses both large and small. A listing of all the different possible avenues for raising funds to finance your business is beyond the scope of this law letter. The objective is to provide you with a basic working knowledge of various types of financing and things to watch out for with each. The most common sources of business financing which will be discussed in this letter are as follows: The most obvious advantage of using personal savings to start up or expand your business is that you relinquish no control over your business. However, it is relatively rare for a business owner to have sufficient personal savings to completely finance his or her business. Personal savings are often used in conjunction with other forms of financing, i. This also enables you to maintain control of your business. However, in the event a business does not succeed and loans from family and friends are unable to be repaid, this can create significant strains on personal relationships. Conventional Debt Financing Banks, credit unions and other financial institutions are commonly used by business owners as a source of financing. The most common financing instruments used with debt financing are lines of credit or operating loans used to finance inventory or accounts receivable, term loans used to finance fixed assets, i. Most financial institutions will require a business to produce a detailed business plan before loaning them any money. These business plans commonly consist of financial statements for the business including projections if the business is just starting up, a personal statement of net worth, a discussion on industry and target markets, management capability, etc. Financial institutions will analyze your business plan very carefully to determine what level of risk you represent. This risk assessment will ultimately determine whether the financial institution is prepared to lend to your business, how much they are prepared to lend, how loans will be repaid and what security for their loan they will require. The areas of your business plan which lenders pay particular attention to are as follows: A properly prepared business plan will significantly increase the likelihood of you obtaining debt financing from a financial institution. You may wish to consult with your professional advisors legal and accounting for assistance in putting your business plan together. Their assistance can be invaluable. Most financial institutions will require some form of security before providing financing. These can include securities in assets of the business, including land and building, equipment, accounts receivable or inventory. Government Assistance Various forms of government assistance are available for business owners in the form of grants or loans from the federal, provincial and municipal levels of government. These grants and loans are often targeted at specific industries or areas and have criteria which must be met by the business before it is eligible for financing. These government grants and loans can be a very valuable source of financing for business owners. However, business owners must be prepared to invest a substantial amount of time to complete the application process. Approval can be slow to obtain due to extensive review procedures. Different levels of government also offer tax credit programs which provide tax credits in the event a particular method of financing is used. As with other forms of government assistance, detailed and stringent application procedures and eligibility requirements apply with these tax credit programs. These can include formal partnerships, joint ventures or joint ownership of a subsidiary company. However, it is very important to decide issues such as sharing of profits, control and decision-making issues and responsibilities at the outset. Failure to do so and failure to properly document these issues with the appropriate form of agreement, can lead to disputes down Page 9

10 the road. Another important issue to address is to ensure that your partner represents a good fit for your business and the opportunity being pursued. Venture Capital Venture capital is an alternative form of financing which may be sought at times when a business is unable to attract appropriate financing from other conventional sources. Venture capital is normally a source of equity financing which is sought by medium-sized business i. They also have contacts in the financial and business communities which can be beneficial to the business. This may be an issue for business owners who do not want to relinquish control over the business. Institutional venture capitalists are often structured as corporations or a pooled fund of money raised by both public and private investors. Some common examples are pension funds and mutual funds with a venture-capital focus, branches of industrial or financial corporations or labour-sponsored funds. Institutional venture capitalists will usually conduct the same kind of detailed review of your business as would a conventional lender. Investments by institutional venture capitalists are generally for a longer term â up to eight or ten years. Some venture capitalists will be prepared to offer debt financing subordinated to conventional bank financing. However, such subordinated debt financing will normally have to be secured by business or personal assets. Discussing these issues in detail is beyond the scope of this lawletter. For advice on an actual matter, you should consult a lawyer. To contact a member of our team call us at or or contact us online to make an appointment. Page 10

11 Chapter 9 : What are the sources of funding available for companies? Long-Term Sources of Finance Long-term financing means capital requirements for a period of more than 5 years to 10, 15, 20 years or maybe more depending on other factors. Capital expenditures in fixed assets like plant and machinery, land and building etc of a business are funded using long-term sources of finance. Equity finance Last Updated: Two of the main types of finance available include: Debt finance - money provided by an external lender, such as a bank, building society or credit union Equity finance - money sourced from within the business. Knowing who to approach for finance can help you find the best finance option for your business. It can also give you several alternatives if traditional finance options fail. See the list below for some common sources of debt and equity finance: Debt Finance Financial institutions Banks, building societies and credit unions offer a range of finance products with both short and long-term finance solutions. Some products include business loans, lines of credit, overdraft services, invoice financing, equipment leases and asset financing. Retailers If you require finance to purchase goods such as furniture, technology or equipment, many stores offer store credit through a finance company. Generally, this is a higher interest option and suits businesses that can pay the loan off quickly within the interest-free period. Suppliers Most suppliers offer trade credit that allows businesses to delay payment for goods. Trade credit terms often vary and may only go to businesses that have a reputable connection with the supplier. Finance companies Most finance companies offer finance products via a retailer. Finance companies must have a registration, so before you obtain finance check the professional registers on the Australian Securities and Investments Commission ASIC website. The factor company then chases up the debtors. While factoring is a way to get quick access to cash, it can be quite expensive compared to traditional financing options. If you decide on this option, carefully consider how this arrangement could affect your relationship. Investors and lenders will both expect some amount of self-funding before they agree to offer you finance. Family or friends Offering a partnership or share in your business to family or friends in return for equity is often an easy way of obtaining finance. However, consider this option carefully to ensure your relationship is not adversely affected. Private investors Investors can contribute funds to your business in return for a share in your profits and equity. Investors such as business angels can also work in the business providing expertise or advice as well as funds. Venture capitalists Venture capitalists are usually large corporations that invest large sums in start-up businesses with the potential for high growth and large profits. They typically require a large controlling share of the business and often provide management or industry expertise. Stock market Also known as an Initial Public Offering IPO, floating on the stock market involves publicly offering shares to raise capital. This can be a more expensive and complex option and carries the risk of not raising the funds needed due to poor market conditions. However, you may be suitable for a grant, such as business expansion, research and development, innovation or exporting. Crowdfunding Some social media websites offer entrepreneurs a crowdfunding platform for their product prototypes or innovative projects. It involves setting a funding goal, providing project and budget details and inviting people to contribute to a startup capital pool. Page 11