There are a number of different types of financing or funding that any business will use:
Businesses often start out with the owner putting his or her own money (personal equity) into the business but to expand and develop businesses often need more investment from private investors such as friends and family, business angels, venture capital companies and others. Further information about private equity is available here.
Many businesses borrow to finance their businesses whether it be for investment or expansion or for working capital. Further information about borrowing from banks and non-banks is available here.
European Union agencies such as the European Investment Fund make available grants and supports for businesses. Further information on EU Funding is available here.
A number of government bodies and agencies provide funding and other supports to businesses, particularly small businesses. Further information on available Government Supports is available here.
Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors. This approach taps into the collective efforts of a large pool of individuals—primarily online via social media and crowdfunding platforms—and leverages their networks for greater reach and exposure.
Crowdfunding is becoming an increasingly popular source of funds for SMEs with a number of established crowdfunding providers already operating in the Irish market. Crowdfunding websites match those who have ideas they want to turn into reality with investors. Interest is generally payable by the business to the investor. The crowdfunding website takes a commission from the funds raised.
The advantage of crowdfunding is that it can provide access to finance without having the bureaucracy normally associated with borrowing money. A disadvantage of crowdfunding is that some projects never get off the ground.
Crowdfunding is generally easier to access for business that are well-established, or who are younger businesses with strong growth and potential.
The cheapest way to finance your business is to carefully manage the cash that comes in and goes out to make sure that there is always enough to meet your needs. More information about managing your cashflow is available here.
A business usually seeks to strike a balance between debt and equity to finance growth. Debt carries greater risk as the business must ensure it has the ability to repay the debt; where equity is obtained from a third party, the outside investor may seek some control over the objectives or management of the business.
Before deciding what form of financing is needed, a business should consult with a financial adviser or accountant to assess its current financial situation, its needs and the options available.