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Startup Financing Guide

Everyone understands that starting a new business is not a simple challenge or easy process to undergo.

No matter how ambitious your goals are or whether you are planning to head a large enterprise or operate as a sole proprietorship, it is critically important to find initial and early-stage financing to help sustain and grow a successful business.

The following are some of the more viable and common financing methods that are available currently to entrepreneurs and start up businesses. 

  1. Business Loans And Grants

Since startups are so important to contributing to increased employment opportunities and economic growth these days, governments are often very motivated to allocate funds to support their progress and goals.

Applying for low-interest loans and grants from programs that are backed up by public funding, like start-up loans, may be a fairly complex and time consuming process but it also can be a very effective way for startups to obtain access to funds to help them grow their businesses.

In addition, there are commercial loans that are available that are offered by numerous mainstream financial service providers and banking organizations.

In recent years it has become very difficult to access funds as a startup company from mainstream channels as these loan providers are fairly reluctant these days to fund new businesses which they have a tendency to consider as being too risky. A lot of people are using sites such as www.guarantor.co.uk.

However, there still are ways for startup businesses to get access to the funding that they need from these mainstream channels for their early-stage development.

  1. Peer-to-peer (P2P) lending and crowdfunding

In recent years peer-to-peer (P2P) and crowdfunding mechanisms have become some of the more viable and important ways for startup companies during their early stages of development to gain access to funding.

Usually crowdfunding involves selling some of a company’s small equity stakes by the founders who are attempting to obtain a certain funding level to get their ideas launched.

Within this online context, some high-profile successes have been achieved, but it is currently being used on a regular basis by an incredibly diverse range of various startup businesses who have been able to appeal effectively to the crowd when it comes to backing up their business ideas in exchange for a percentage of future returns that will be generated by the enterprise.

Peer-to-peer lending is a distinct yet similar process that is appealing to investors who are interested in having access to strong returns for their outlays of money, and in order to achieve their goals are willing to provide funding to startup companies.

This process is also carried out completely online and one that involves startups detailing their business ideas and demonstrating what their profit-making potential are in as convincing a way as they possibly can.

The two parties can then hammer out the lending terms between them, with the goal of course being to provide the startup business with the ability to develop and grow and then pay its financiers back along with the agreed upon returns.

  1. Invoice Finance

There is another type of financing that can be a very valuable way for startups in many different situations to employ which is called invoice finance.

Two different kinds of invoice financing are available. They are called invoice factoring and invoice discounting.  They are both related to the process of an invoice being sold that one company has issued to another company at a price that involves paying fees or for less than the total amount that is owed.

In a perfect world, obviously a startup would be able to wait to receive payments that related to their invoices so that they were paid in full.  However, when cash flows are very tight and time is of the absolute essence, then having access to a cash injection upfront that reflect a nearly entire amount can frequently be a very attractive deal to a startup business.

The main distinction between invoice discounting and invoice factoring is that with invoice discounting, the issues of an invoice is still responsible.  With invoice factoring, the buyer of an invoice will usually become responsible to ensure that payments are made by invoice recipients.

  1. Short-term loans

Since there is such widespread reluctance on the part of mainstream lenders to fund startup businesses even when it has been demonstrated that they have significant growth potential, it has resulted in a proliferation of short-term lenders coming onto the scene to offer financing.

These financing solution providers offer loans, mainly to medium-sized and small businesses in addition to startups.  The loans that they offer usually have a fairly high interest rate attached to them.

Of course it is preferable for all businesses, including startups, to have access to loans with low interest rates, however those tend to be very difficult to access these days.

So although the fairly high interest rates that come with short-term loans can definitely be a major deterrent, they do offer the significant benefit of being very easy and quick to access, which is an important advantage that is very attractive to ambitious and eager startups.

  1. Cash flow loans

A major challenge that is commonly faced by startup companies as they are looking to develop sustainability is having to overcome threats to their cash flow that often arise without warning and very rapidly.

Even when a startup is making great process in a number of different key operating areas, there can still be problems with cash flow that arise quite suddenly that may potentially undo all of the good work being done and progress that has been made.

In order to offset the potential dangers that are posed by cash flow problems, there are now cash flow loans that startups are able to access which basically function as an alternative option to overdrafts or bank loans.

One of the main potential advantages with cash flow loans for startups is that they may be accessed online and obtained in as few as 24 hours from when a deal is agree upon and the funds are made available.

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