Options between Venture Capital and Alternative Financing

Options between Venture Capital and Alternative Financing
August 10 05:22 2018 Print This Article

There are now several types of financial schemes available to generate working capital for a business. It may be a bank loan or credit for different options.

In today’s world, the economic condition is very much uncertain for any business. As a result, it is becoming difficult to qualify for a bank loan. It has now turned into a difficult scenario especially for start-up and companies with financial difficulties. In this regards, some of the business owners are now opting for venture capital instead of qualifying for a bank loan.

Is venture capital good?  

Equity and working capital are totally two different kinds of financing and this is a major problem to drag equity investors for funding working capital.

Now working capital is a sum of money which is used to pay business expenses and can be financed through several short time policies. On the other hand, equity is something which is used to finance a rapid growth of business or purchasing of any long assets.

One major drawback to bringing an equity investor in a running business is the loss of control. Selling equity means you are basically handing over some percentage ownership to a venture capital. This may lead to a loss of control and this is a crucial decision for the good of your business.  

Alternative financing solutions: 

If you are not eligible for a bank loan or even a line of credit, then these kinds of alternative solutions can come pretty much handy to run your business.

Full-Service Factoring: This is a very much reputed method and perfectly suited for companies with huge customer concentration and rapid growth. Here, the outstanding account of a business is sold at a discounted rate to a factoring company to manage receivable amount until it’s paid. 

A/R financing: It is a perfect solution for a business with the stable financial condition but yet to be bankable. Here a financing company calculates how a much a business can borrow. Once a borrow request is made, it pays money on the basis of receivable accounts. 

ABL financing: It is a special type of credit facility which covers all of a company’s assets including inventory and equipment. Here, a business will collect and manage its own receivables and will submit collateral reports for an audit to a financing company.

Hence, it is the time to choose the best financing option for your business considering the pros and cons of each option. Use of alternative financing scheme could be the best to gather capital for your business. After all, it is your business and you should keep as much as possible without diluting your ownership.

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Melinda Woodward
Melinda Woodward

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