Best 5 Ways to Raise Working Capital for Your Business Without Taking a Loan

 

Starting a business can be difficult if you don't have the funds or working capital. This is especially true for obtaining a loan. Many other business owners are curious about the same thing and should consider casting into freshwaters. Depending on your risk profile and sector, you may not be able to secure a bank loan under acceptable conditions; thus, it may be necessary to obtain outside financing from investors.

Hopefully, though, you’ll find this list of alternative funding sources for your business useful. The good news is that there are many different ways to find the capital you need for your business venture, and some of these options may not be immediately evident. So let’s take a look at some of these options and how they can help you fund a business without taking out a loan.

1. EQUITY FINANCING

Equity financing is a way to get money for business purposes, such as paying bills or investing in a company’s growth. A firm effectively sells ownership in its company in exchange for cash when it sells shares. An entrepreneur's friends, family members, investors or an initial public offering (IPO) are all possible equity financing sources.

 When you raise funds for your startup through equity financing, you give investors a portion of your company in exchange for capital. Investors can alter your startup’s trajectory by contributing to its new ideas and technological capabilities; they contribute to your network as well. Finally, as part of the deal, you must sell your stock to an appropriate buyer at some point.

2. INVOICE FINANCE

The cash flow of many businesses is affected by a large, extended gap between income and the time when clients pay their invoices. As a result, there may be a shortage of working capital. Invoice financing is one way to bridge this gap; it is the process of borrowing against the value of invoices that you have issued. Invoice financing refers to various procedures that include invoice discounting, selective invoice discounting, invoice factoring, and spot factoring.

Invoice finance is a form of asset-based lending that allows businesses to borrow money against unpaid invoices. As a result, companies pay their lender a percentage of the overall invoice amount as a fee. Businesses can use this kind of financing to address their short-term liquidity needs by borrowing a portion of their unpaid invoices as a loan. These unpaid invoices are known as accounts receivables. It means that businesses will receive the agreed-upon sum in exchange for invoices issued at a later period.

3. ASSET FINANCE

Asset finance is a procedure for borrowing money or taking out a loan against what you already own by utilising a company’s assets as security. The terms of the financing are often based on the value of those assets, such as investments or inventory. This can give a safe and simple means of obtaining working cash for your company. Collateral can be anything from machinery to trucks to even buildings. A transportation company, for example, might use its trucks as collateral to acquire financing.

Borrowing money is often based on the value of the assets that a company offers as collateral. The borrower will have to provide a security interest in those assets to the lender, who lends the funds. The products that can be funded through asset-based lending include short-term working capital solutions and expansion financing. Compared to typical bank loans, you'll have more flexibility when borrowing through this product. It provides a simple solution to enhance working capital for growing enterprises and start-ups. 

4. BUSINESS CASH ADVANCE/MERCHANT CASH ADVANCE

A merchant cash advance is a loan based on a company’s projected future earnings. These loans may be known as revenue loans, turnover loans, or revenue-based financing; they come in various forms. A cash advance is different from a traditional business loan. It effectively sells future sales to the lender at a discount rather than having an outstanding loan amount, interest rate, or period. A merchant cash advance is a method through which a business owner pays a lump sum amount to suppliers in advance using daily or future credit or debit card transactions or working capital. Small and medium-sized businesses frequently face short-term cash shortages; therefore merchants in India choose Merchant Cash Advance—also referred to as MCA or Point of Sale (POS) Loans—to alleviate their businesses’ liquidity/ working capital constraints.

5. SAVINGS

As an entrepreneur, it is important to understand the financial and working capital needs of your business. The right funding strategy can help you meet those needs. If you already have money in your bank account, the best option for funding your business is to use it. You won’t owe anyone anything and won’t have to pay any interest either, which means you save a lot of money in the long run and satisfy your financial and working capital essentials.

Putting your money in your startup or existing business is an investment that not only changes your financial future, but encourages others to invest as well. You don’t have to worry about interest rates or giving away all of your company’s stock, because you can invest all of it into yourself and use it as a financial tool.

CONCLUSION

 To start a business, you need to be clear about the kind of company you want to create and have an idea about the resources you’ll need. You also need to know where to look for those resources.  Make your success a reality! Use the techniques above to help grow your business financially.