Businesses use funding for various different purposes, such as increasing working capital, purchasing additional assets, restructuring debt all with the aim of scaling up the company. This funding can be acquired through multiple different schemes, campaigns and investments such as applying for growth funding.
The main purpose of all funding is to help a company progress until they are generating sufficient profits, meaning that they no longer require alternative means of funding because they have become established enough to rely on their income. Companies usually rely on funding at the beginning of their journey, which may even just be funding invested by the founders themselves.
How Do Companies Find Funding?
Companies typically use funding invested by the founders to kickstart a company. After this, they may accept investments from friends and family alongside running funding rounds. Funding rounds begin with the seed funding round and then progress through Series A-D. During this time, companies may accept capital injections from angel investors, venture capitalists or crowdfunding campaigns.
What Do Startups Use Funding For?
Startup companies usually require some form of funding in order to get off the ground and make some progression within their field. The funding acquired at this stage is typically used for product development and market research, allowing the company to take the first steps towards establishing itself.
At this stage, startup companies are typically reliant on the investment from the founders, which will be the first capital injected into a business. In addition to this, some startup companies also receive investments from friends, family or other investors.
Very few company founders manage to set up a successful business without receiving some form of investment as they may struggle to make asset purchases which are necessary for progression.
More from funding
Why Do Companies Need Working Capital?
Companies require sufficient working capital as this is representative of their liquidity. This means that a business will be able to pay off any upcoming debts. Working capital is considered to be a part of the operating capital of a business and allows it to continue operating through paying any expenses.
What Is Growth Funding?
Growth funding is capital which allows a business to progress further. This can include plans to scale up a company through offering additional products or services or expanding to cater for a new, larger market.
Growth funding can help a company to take advantage of opportunities to move forward and further expand the business. It is available from a variety of sources and it is important to see which would be the best fit for the company before applying.
Growth funding can also allow companies to make an asset purchase to help them scale up or continue and improve their ongoing operations.
What Is Asset Purchase?
Asset purchase is when a company buys new machinery, vehicles or other equipment which can help the business to expand. This may require additional funding if a company wishes to purchase assets which it had not originally budgeted for.
Companies sometimes use asset funding loans to purchase new equipment and this debt can repaid on a monthly basis. These loans are typically available to be paid off between a timeframe of 6 months and 5 years and allow companies to work around their cash flow.
Asset purchase can also refer to a company taking on additional staff or renting office space for increased operations. It is not always used to refer to a physical purchase.
What Is Debt Restructuring?
Debt restructuring occurs when a company alters it’s plan to pay off any existing debt. This means that a company is able to consolidate any capital which has been borrowed to ease the business’ financial situation for the time being.
The main benefit of debt restructuring is that a company will be able to improve their financial planning and potentially have less payments to make on a monthly basis. The company may then be able to grow and progress as cash should become available to allow for additional working capital.
