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One of the most difficult job for any new business or startup is to generate finances. It is often seen that the financial institutions like banks are less interested in providing finances to startups. Reason being that when your business is new in the market, then it is less reliable to provide credit by bank.
So it is essential for every new startup to mine out some new and innovative ideas to sort out from this issue. Following are some of the methods to generate finances for your startups:
- Personal Financing: It involves investing your own money in your business. Using your own savings are always recommended in business. It can be seen as a caution start and attracts most of the investors for further credit also.
- Friends and Family: They are the one who don’t worry about their money while investing in your startup. Borrowing some money from them can be really helpful for your business.
- Crowdfunding: Here the business is initiated from the finance generated from large number of people. Every person can contribute any amount of money.
- Peer-to-Peer Lending: It is somewhere similar to Crowdfunding method. Here the group is formed by similar nature of companies or firms who help each other with their need of finance.
- Vendor Financing: Vendor financing is lending of money by company to its customers so that they can buy product from that company. This also takes place when the manufacturers and distributors are convinced to defer their payments until the stock is fully sold. This means extending the period of payment, for example, from 60 days to 75 days.
- Purchase Order Financing: One of the problem experienced by almost every startup at the beginning is to find out new order. This problem is thereby solved by purchase order financing, where the company lends money to the new business so that in return the company give new orders and fulfills their requirements. This can be said as giving advances to supplier to complete the order of customer. That’s why it benefits both the parties.
- Factoring Accounts Receivables: In this method, the seller have the facility to fund his receivable until the amount is fully paid. It means, if the credit period is, for example, 60 days. Then the factor will pay some amount at the beginning and rest at the end of the period. In this way, the startup can sustain and manage its day to day expenses.
So these are some of the methods, which are rather very usual in nature. But it should not be mistaken as the only way to allocate finances. Our innovation is required to explore the new ways out of the dilemma.