Working capital is essential to keep a company’s daily activities running. Without adequate cash inflow, businesses can face a liquidity crisis, and also erode their scope of optimising production and revenue.
In such situations, small businesses often plan on availing a business loan or other types of trade credits. Unfortunately, most of such funding options are not fit for small companies or start-up ventures.
Businesses can alternatively access other financing options available to them to meet their working capital requirements. They can reach out to investors to raise funds against simple terms of service and keep their operating activities smooth, throughout.
However, the effectiveness of such a decision for businesses depends on their choice of investors and their agreement. To make an informed choice, companies should find out more details about small business investors, who serve as a reliable source of working capital for SMEs.
These following investors for small businesses serve as a useful source of working capital, and help to raise adequate funds as per requirements. Individuals can find them easily on the platforms mentioned.
Angel investors are accredited entities with a net worth of more than $1 million. Under normal circumstances, angel investors prefer working alone. However, they often team up with other angel investors if they intend to form a fund.
Though angel investors serve as a useful source of working capital, small businesses often find it challenging to scout for them. They also usually demand a high percentage of returns on their invested capital.
Since angel investors put their money into enterprises, they are quite thorough about existing business plans and prospects of a company. Businesses must also note that when such an investor puts money into their business venture, they automatically own a share in their firm.
These small business investors prove useful when a business is planning its expansion and intending to take upon riskier ventures. It must be noted that venture capitalists do not invest their own money directly into a business. Instead, they set up a fund for others to do so. However, when they invest in the company, they become a shareholder of it, instantly.
Though venture capitalists prove helpful for start-ups, they are more inclined towards established firms with a strong management team, and a better annual turnover. They also avail a high rate of return on their investments.
Businesses also have the option to avail reward-based or donation-based crowd-funding from designated platforms. Such platforms enable business entities to obtain funds online by asking individuals to contribute a small sum of money, either in exchange for some reward or goodwill.
Some of the common crowd-funding platforms include GoFundMe, Kickstarter, and Indiegogo. The drawback with such investment platforms is that individuals must secure a wide reach and pitch a solid business idea, to raise enough funds to meet future requirements.
With such an investment option, businesses avail capital in exchange for a portion of ownership in the company, preferably through shares. It must be noted that even though the initial investment is not paid out, equity investors still receive a promised portion of return from the company. Since there is no guarantee on returns, equity-based assets are deemed riskier for the investors. On the other hand, businesses have to pay a significant amount as returns to their investors in order to avail the required capital.
Peer to Peer Finance helps businesses that need capital to connect with the potential investors. Typically, investors for small business in this setup are entitled to receive a portion of their investment every month, along with an interest amount. Notably, the interest paid via this investment option is relatively low, when compared to bank loan interest rates.
These financial companies rely on technology to facilitate smooth financial services. They are equipped in providing integrated cash flow solutions, and help businesses to improve their current standing quite easily.
KredX is a leading integrated cash flow solution provider in India that helps businesses to use their unpaid invoices to gain quick access to working capital within 24 to 72 hours*.
All that businesses have to do to avail our services is upload their unpaid invoices on our portal. Once uploaded, the invoices are listed on our portal, where accredited investors find and purchase them. Subsequently, funds are disbursed to businesses, allowing them to take care of their working capital needs.
As for the small business investors, putting money in pre-vetted invoices serves as an alternative form of investment, and helps generate returns easily.
Nonetheless, individuals must check all the features, benefits, and drawbacks of each of these options, before they reach out to a suitable small business investor. Once they are familiar with the characteristics of each type of investors, they will be able to make an informed decision.