If you are planning to build up your company, the most essential ingredient to build up a good business is its funds. Due to recession in economy lending policies have been made strict, wherein borrowing funds have become difficult for individuals and companies. Capital is continuously required by business owners to expand its business houses, bring in innovations within the market or to improvise working of the company. Funds can be borrowed from various sources like seed capital or venture capital; however the choice should be made after considering its advantages and disadvantages.
Advantages of seed capital
Various advantages can be earned from borrowing a seed capital as mentioned below;
- If company borrows seed capital, borrower need not have to pay the money back in case business becomes insolvent or bankrupt.
- While borrowing seed capital, business owner is not required to keep his asset as collateral security.
- By putting up sufficient capital, the image of a company looks better to investors and Lenders.
- Seed capital brings in more cash to the company, so business need not have to get buried into huge debts.
Disadvantages of seed capital
- Seed capital can be borrowed only after sharing ownership and profits with other investors.
- Different business owners and investors may have different business ideas to run the business, which shall make things difficult for the owners to manage.
Sometimes owner may feel the need of borrowing money from the market and such financing needs can be met from raising venture capital funds. However before an owner raise venture capital it is important for them to consider the tips mentioned below;
- Venture capital can be raised from the market, if company has a proposal ready and half of the funds have already been raised for it by the company.
- Such additional funding may be required by the company to meet its business expansion needs. Such capital once raised can be used to meet purchase additional machinery or to hire new and additional employees.
- These extra funds can be used for purchase of rival companies to decrease competition from the market.
Different sources of VC
It is one of the best methods wherein company can raise additional funds as and when required. It saves the company for bearing high interest charges which are levied on the company on failure of repayment of bank or VC dues.
Supplier chain finance
Herein company can approach suppliers, distributors or manufacturers for taking extra loan to meet requirement of extra funding.
These loans are extended to companies for short term and it is mostly incurred to fund purchasing of equipment or machinery.
Individuals or business owners can also use up his personal savings if he feels that it won’t affect his usual way of living life.
The above-mentioned tips should thus be followed by business owners for raising funds from the market in the form of venture capital such that owners need not have to face huge burden of interest rates.