What are The Types of Business Finance?

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Every business looking for growth requires finance to support its plans. Unexpected expenses, delays in the payments from the clients, etc can affect your finances badly. When your cash flow is affected, you need to look for other financial options to overcome the crisis.

Acquiring business finance is a challenging process as most lenders these days are extremely hesitant to take risks. However, business owners can find alternate funding options to handle their cash flow and to get the funds they require. The type of business finance a company chooses determines the company’s health.

Here are the different types of finances business owners can find.

  • Debt Finance

The fund received through debt financing has to be paid back along with its interest. The security and other conditions of the finance will depend on the purpose of the loan. The credit scores of the applicant, the operational track record of the applicant, bank account management, etc are some of the criteria to avail debt finance.

Debt financing is usually of two types – Short term and Medium to Long term. Short-term debt financing will be for a short term ranging from 30-180 days used for short-term or seasonal needs. Medium to Long term debt financing will be for a period of 1-5 years. It can also extend to a decade depending on the business finance type. Long-term debt financing is usually used for bigger expenses like purchasing a building or buying a plot.

  • Asset-based lending

The asset-based lending can be for small, medium, or large businesses by offering funds for their needs like buying a property, purchasing equipment, acquisitions, expenses for importing and exporting, etc.

  • Equity finance

Equity finance involves risk capital as repayment of the funds or principal is dependent on the venture producing enough funds. As it involves risk, equity financing can be done anywhere, at any time, with anybody considering the purpose, the amount needed, and the current situation of the business.

  • Mezzanine Finance

Mezzanine Finance is considered to be a hybrid business finance solution combining debt financing and equity financing. It is mostly used to broaden the existing business to a wider area. The lender gets the power to get the ownership or equity interest if the borrower fails to repay the amount.

  • Capital Raising Funds

Capital Raising Funds will be offered by the rich and investment banks in the country for venture capital. This finance type is mostly like equity financing and normally will be for a period of about 5 years.

  • Angel Investors

An angel investor can be an individual or a company entrepreneur or even specific investor. Businesses must have good company contact to acquire such financing. It can also be received through consultants, business advisors, lawyers, etc.

  • Relatives and friends

Most people acquire their capital finance for their startups with the help of their friends or relatives. But failing to repay on time may break the relationship and bond you have with them. As the funding is completely on personal acquaintance, there won’t be any help group or acquisition agencies in this type of financing.