Adequate finances are among the primary requirements of building a business. New or established corporations constantly look for means to gain capital to expand their operations, invest in R&D and introduce technology.
Regardless of the intention behind raising finances, the resources remain the same. In this article, we’ll brief you about these limited yet prominent funding sources. So, let’s cut to the chase!
- Retained Earnings
The most common funding source is retained earnings. It is the net income after deducting expenses and obligations. Entrepreneurs prefer this funding option as the capital pool expands without increasing the debts. These finances are often used for future projects and business growth.
It is an inexpensive way to generate finance, providing entrepreneurs the liberty to use the money either partially or fully and reinvest it in the business. However, the amount of retained earnings depends on the company’s value, size, and earning capability. So, it might not be a suitable option if you need a large amount of funding.
- Commercial Surety Bonds
Commercial surety bonds are generally used by licensed businesses to meet the set regulations ensuring the general public’s best interest. These businesses are often working on high-end government projects.
Different types of commercial surety bonds are available such as the court, federal, fidelity, and license & permit. You can select the one that suits your needs the best.
Bear in mind that these are legally binding contracts where obligations must be met. The surety given helps minimize the loss, facilitating the prevailing financial requirements.
- Angel Investors
Angel investors are commonly referred to as private or seed investors. They provide funding to startups and small businesses in exchange for company equity. It is a one-time investment to aid businesses in their early stages.
Generally, they are among the family members or friends of the entrepreneur who help in commencing the business. However, as global entrepreneurship advances, companies can avail of angel investment using crowdfunding or approaching industry professionals. If the business idea is appealing, they are likely to secure funds in exchange for convertible debts or equity.
Tip: Having excellent negotiation skills is critical to secure angel investment. As big corporations will often try to avail high returns on investments.
- Equity Funding
Last but not least, you can increase your capital by selling ownership stakes in the form of shares. This is known as equity funding. Private businesses often provide shares to their family and friends so that major funding remains within the known. They can also provide shares to the public using IPO (Initial public offering).
The best part about this funding is that you don’t have to repay the money. There is no debt, instead just the investors. You can still raise money even if you have a poor or no credit history.
To Sum It All Up
Ideally, companies use their profits to operate on a daily basis. They keep different reserves to tackle unexpected financial crunches and for business expansion. However, when taking on a new and big project, you can use any of the funding resources stated above. or you may try SocketTime. It will ensure you avail of adequate capital and accomplish the set objectives