Small business guides > A complete guide to financing your business > Main types of finance
Main types of finance
It takes money to make money. So what sort of finance options are out there? Here are the types of finance that fund most businesses.
Common finance options
Debt (loans)
Term loan
A lump sum repiad over a fixed time
Line of credit/credit card
Funds that are available to use when needed
Peer-to-peer lending
A crowdfunded loan
Friends and family
When those close to you lend you money
Invoice financing
An advance on the invoices you’ve issued
Equity finance (investors)
Equity crowdfunding
Where the public can invest in your business
Angel investors
Individuals who invest their own money
Venture capital
Professional investment groups
Friends and family
When those close to you buy into the business
Incubators and accelerators
Development schemes to build and boost small businesses
Other
Grants
Funds that don’t have to be repaid
Presales
Customers pay before an item is generally available for purchase. This can include rewards-based crowdfunding.
The type of finance you choose matters
When you’re desperately keen to buy, start or grow a business, you may feel like any finance will do. Don’t fall into that trap. Choosing the wrong type of finance could break your business later, or severely hamstring it.
Each finance type has its own pros and cons. Use this guide to learn about them. Ask which suits your business, and you as a person – because that matters too.
Begging, borrowing, and bootstrapping
Some businesses don’t require a lot of money or capital at the outset. For example, you might only need a laptop and an internet connection if you’re offering a home-based service like proofreading or bookkeeping.
Other businesses start out really small, with minimal money, and build slowly. This is often called bootstrapping. In these cases, it’s common for owners to cobble together their own finance through personal savings, personal loans, or taking extra shifts at their day job. Even if you’re doing that, it’s worth knowing about the types of finance out there. You may just need an extra injection of cash down the road to get the business truly humming.
Chapter 5, How to get a business loan
A business loan is one of the most common ways to finance a business. Learn how they work and how to get one.
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