Getting funding source for a company is a difficult task to economy is doing well however it gets difficult in situations when economy is going through poor conditions. Extracting source from the market i.e. financial institutions is not an easy thing to do and business owners are expected to be proactive to gather funds from them. However, in case of poor economy owners have to be creative such that they can have access to funds from other sources else than banks and other financial institutions.
Friends and Family
Borrowing from friends and family is much simpler and it has even led to success of an enterprise. Banks provide funds at huge interest rates however such rates are comparatively lower when sources are extracted from friends and family. The criteria for lending are almost decided on the basis of relationship between borrower and lender. As per expert’s opinion, it is important that a lending agreement should be framed wherein intention of borrower and lender should be specified along with the lending conditions; this saves the personal relationships from getting damaged. Clearing out every fact and aspect is important as this will fade out worries occurring between borrower and lender.
Once an agreement has been formulated, both parties to the agreement should stick on it and make sure that all the terms are followed by them. But if in case borrower is unable to repay back the money he is suggested to intimate the same to the lender such that things can be sorted out on time and things can be worked out accordingly.
Peer to peer lending
It is similar to lending between friends and family, however the process is considered to be much more formal and structured in comparison to the process wherein funds are asked from friends or family. This formal process helps maintain a line between emotional bonding and business relationships thus ensuring that lending agreement is signed practically such that both the parties to agreement need not have to incur losses.
The borrower must make sure that maintain a good credibility and reputation in the market, such that lender feels no risk in lending money to the company. Borrowers in this situation are expected to provide personal information like bank account or other essential ingredients which are sufficient enough to convince the lender of the paying capacity of the borrower.
For borrowers who do not want to take a bank loan or find it a tedious task to do then he can opt for an alternative option i.e. accounts receivable factoring. The invoices here in can be sold to a factoring company who in return provides immediate cash to the company. It hence eliminates the waiting time between the date of invoice and the date when payment against the invoice is actually received.
Later on factoring company can recover the amount from the party to invoice. The factoring company provides credit on the basis of reputation of the company. The prime choice for factoring companies are start up business houses or companies which have grown quickly in comparison to other companies present in the market.