Securing Capital: Essential Business Financing Methods

Business Financing Sources for Startup Companies

Understanding Startup Financing Needs

When a company is founded, it is called a startup company. A startup company is a business that is in the first stage of its operations. These companies are often initially financed by their founders as they attempt to capitalize on the development of a product or service for which they believe there is a demand.

Due to limited revenue and initially high costs, most of these small operations are not sustainable and require significant financing to survive. A common challenge for these nascent companies is the difficulty in securing external financing, as the majority of investors may not rely on their solvency and liquidity because their operational activity is still limited.

Key Sources of Business Financing

Some of the most important sources of financing, both external and domestic, include:

• Venture Capital
• Angel Investors
• Bonds
• Lease agreements
• Crowdfunding
• Microcredit

Venture Capital

Venture capital (VC) is financing that comes from companies or individuals in the business of investing in young and privately held businesses. They provide capital to young businesses in exchange for an ownership share of the business.

Angel Investors

Angel investors are individuals and companies interested in helping small businesses survive and grow. Their objective is often broader than just focusing on immediate economic returns, but they are still interested in profitability and security for their investment.

Bonds

Bonds are instruments issued by a company seeking financing. In exchange, the company receives an amount of money that must be repaid on a due date, along with specified interest rates. It is one of the most common forms of corporate financing.

Lease Agreements

A lease is a legal document outlining the terms under which one party agrees to rent property from another party.

Microcredit

Microcredit is a variation on traditional credit services that involves providing small loans to people who would otherwise be unable to secure credit, typically due to poverty.

Crowdfunding

Crowdfunding is a method of raising finance by asking a large number of people for a small amount of money. Nowadays, the internet is a highly effective tool for reaching a wide number of potential investors to secure financing.