With a serious economic crisis underway, brought about by the pandemic of the new coronavirus (COVID-19), several companies are looking for auxiliary capital to keep the business active and survive the recessionary phase. But what is the alternative fundraising for a company?
Regardless of the volume and application of this amount, entrepreneurs must study the market and know the different ways of raising funds for companies available in the market, to ensure the best investment and protect the stability of the business.
Whether to circumvent budgetary difficulties or leverage opportunities, this knowledge is a strategic differential.
If you want to know the main financial management mistakes that can hinder the development of a company, we recommend reading the post: 15 financial management mistakes that you should not make and how to avoid them?
In order to see more in depth the options for raising corporate cash, we have separated the main ways of raising financial resources for companies that are most used in the country. Good reading!
What is fundraising?
In summary, fundraising consists of a set of strategies and processes that aim to raise and mobilize certain capital to finance business operations.
Whether to help the business in crisis situations or to optimize projects, this amount is a strategic acquisition.
In other words, fundraising is nothing more than seeking financial support to meet some of the organization's purposes. The idea is simple, but executing the operation may not be so easy, so the manager must be prepared.
When deciding to seek auxiliary capital from third parties, the organizational leadership must have a strictly structured planning with the real need for this investment detailed in details.
It is essential to know the exact destinations of each part of the fund raised to ensure that the general objective is fulfilled.
The applicability of this money within the business is countless, especially in crisis situations, which is why having this planning is so important.
In addition, it is essential that different ways of raising financial resources for companies are analyzed.
This preparation will allow the company to adopt the best option, considering its demands, characteristics, preferences and thus ensure that the business plans are made feasible with intelligence and security.
To help in the process, later on we will explore the 11 ways of raising financial resources for companies most used in the country.
Who can seek funding?
Whether to increase working capital, develop new projects, acquire a shareholding, expand general activities, buy new equipment or technologies, structure emergency measures, open new branches, among other various operations, the organization will need a certain monetary contribution.
When these applications go beyond financial planning or the company's situation requires external intervention to maintain its economic survival, fundraising becomes an essential measure.
The measure can be sought by companies of all sizes, segments, locations, needs, and so on; what changes are the ways of raising financial resources for companies and their conditions.
In other words, the difference is in the credit line, in the creditor institution, in the interest rate per year, in terms and grace periods, in the percentage of participation, in the type of operation, among others.
As the options are many, it is important to know the particularities of each one and to understand the related responsibilities. Only in this way, the manager will be able to design an appropriate solution that is compatible with the company's reality.
How to fundraise for a company?
Now that you know what fundraising is for a company and some of its possible applications, let's explore the ways that fundraising can be accomplished.
Check below the ways of raising financial resources for companies most used in Brazil.
1. Investment with own credit
The first form of fundraising for a company that we are going to explore in this post is its own credit. Following a simple logic, if you don't invest in your own business, how can you expect someone else to invest?
Of course, having that credit available to intervene in the company depends on a variety of unique circumstances. For this reason, this is a form of funding aimed at larger and / or solid businesses.
2. Investment from family and / or friends
Although it is an unattractive option initially, this is a way of raising funds for a more interesting company.
This is because receiving the investment from family and / or friends “frees” the entrepreneur from various bureaucracies typical of traditional financial institutions.
However, as it involves directly close and really important people, it is essential to conduct the process in a professional manner and treat them as conventional investors.
Therefore, create support materials, have a clear speech, present advantages and possible future gains and only mention values at the end of the conversation. The manager can be surprised by whoever he wants and can support his dream.
3. Loans from banks and traditional creditors
This is the most popular form of fundraising for a company in the country, loans from banks or financial institutions to companies on favorable terms (not being negative, having a good credit score, good paying history, market experience, among others) ) can be quite attractive.
As each company has its own financial situation, it is essential that planning is structured to seek the best contracting conditions.
In addition, getting a loan is a way of showing other potential investors that the deal is “real” and reliable. After all, a nationally trusted financial institution secures the project.
4. Investment with crowdfunding
Crowdfunding is another way of raising funds for a company that deserves your attention.
Roughly speaking, it works as a collective financing, a kind of “virtual kitty” that brings together people from all over the internet who believe in the same project. And that investment can be that of your company!
To try to raise funds with this solution, the company must create a descriptive proposal that explains the entire project and register it on a crowdfunding website. An analysis will be done to validate or reject the initiative.
In case of approval, the target, deadline and rewards for donors should be stipulated. If the objective is achieved within the stipulated time, the entrepreneur will receive the funds raised. Otherwise, the amounts will be returned.
5. Investment with angel investors
Of the ways to raise funds for a company that we will explore in the article, the angel investor is perhaps the most difficult to get, because he has clear investment instructions.
This investor can be a natural or legal person and usually gives preference to companies at an early stage, which have high potential for return and rapid growth.
In addition to capital, he also offers experience and acts as an advisor or mentor, helping in business management and using his network to reach new customers and improve the company's position in the market.
6. Investment with venture capital
Venture capital or venture capital is a high-return and high-risk investment fund, aimed at small and medium-sized organizations.
In addition to investing financial capital in the company in exchange for equity or equity interest, this form of fundraising can also extend smart money.
Venture capital gives preference to businesses that already have a significant turnover, so companies that are starting or have low income are not strong candidates.
7. Investment with partner
Another way of raising funds for a company is to win a partner. This type of investor usually enters the business to meet a specific need, including financial needs.
The partner enters the business with the interest of growing with the company, so his contribution will be made gradually and in long-term planning.
8. Peer-to-peer loan
Peer to peer means point-to-point loan, a form of fundraising for a company that works entirely in the virtual scenario and does not depend on the intervention of financial institutions.
Offered by credit fintechs, peer-to-peer is a kind of collective loan that brings together several people and companies to raise a specific amount, requested on an online platform.
9. Investment by IPO
Another form of fundraising is the IPO (Initial Public Offering), a financial process that has all the shares of a company on the Stock Exchange.
This is an interesting option to get thousands of new partners and resources to invest in the growth of the company. In addition, the business gains liquidity to invest capital in other projects and diversify its assets.
10. Investment with business incubators
The tenth form of fundraising for a company is to hire incubators or “accelerators”.
This option tends to give preference to high-tech companies and industrial innovation, providing financial and intellectual support at various stages of business development.
In addition to the financial contribution, the incubators invite compatible companies to share their facilities, as well as administrative, logistical and technical resources. Everything so that the development of the business is optimized.
11. Investment by government contribution
Finally, the last form of fundraising for a company that we are going to address in this post is that of government funding. The main option in this modality is to look for the National Development Bank (BNDES).
This is because most of the money that the government makes available annually for project financing ends up being allocated to this institution, which is around £ 200 billion.
The main advantage of the government contribution is the subsidy of interest rates on loans. In other words, the average rate of this loan is at a level well below that practiced by the market, allowing the company to manage the debt more easily.
Therefore, these 11 ways of raising financial resources for companies can help your company to restructure itself in the market or leverage its participation.
With the most advantageous source of credit, the most appropriate time, the right reasons and smart planning, organizations can access transformative capital and rewrite the history of their business.
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