3 Ways Startups in Singapore Should Evaluate Different Funding Options Like SME Loans

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The life of an entrepreneur is a constant struggle between happiness and misery. Sometimes startup founders are exuberant about the latest milestones they’ve reached; at other times, they find themselves in a constant state of panic as they try to solve another problem that may well end their business.

One of the most difficult and painful problems to solve is that of financing. Here, we discuss the main ways startups can fund their operations and the types of funding that are appropriate for different situations.

Launching a new business

For budding entrepreneurs who have yet to start their own business, funding options are unfortunately quite limited. The best known place is to receive funds from venture capitalists. To truly raise capital from VCs and angel investors, you must demonstrate that you have built a credible career, expertise, network and track record to prove that you have what it takes to make your new business a success. hit.

The key is to prepare a detailed action plan to show why your strategy and product will succeed. Even better, creating a minimally viable product to test the market on your own could help convince VCs that you’re serious about this business and that your idea actually has a decent chance of success. Securing VC funding is a difficult process that requires extremely thorough preparation and a relentless pitching and networking process.

For most people, however, raising funds from VCs will just be too difficult and probably not an option. Instead, most will have to resort to personal savings and ask friends and family to make investments. But, there are also other options like Kickstarter, where you can raise a certain amount of money to help your idea get off the ground by getting pre-orders.

Businesses that have made a little more headway should also consider taking advantage of online crowdfunding platforms such as Fundnel and FundedHere, which offer a variety of funding options such as equity and even revenue sharing. The important step is to get the minimum amount of money you need to at least get your project started; once you start showing progress, investors will be much more likely to lend you a hand.

Cash flow and working capital issues

Finance can be a headache even for startups already in operation. The most common of these pain points is often related to cash flow. For example, many companies must first spend money on rentals, personnel, and materials to create their products before receiving even a dollar from their customers. To make matters worse, some customers will choose to pay 30-90 days after being billed. Startups could end up with a rapidly declining cash balance even as they grow, simply because their immediate cash outflows are growing faster than cash inflows.

In such situations, startups and other SMEs may turn to invoice financing or short-term business loans to bridge the gap between when they spend money and when they receive money. . For example, platforms like finance companies and MoolahSense allow companies to exchange invoices they have issued in exchange for a short-term loan of up to 80% of their receivables. By doing so, SMEs with a large number of invoices do not have to wait to immediately obtain the cash they need. Although their interest rates may be a bit high, their actual total costs in terms of dollar amount are relatively low as they tend to be very short term (1-6 months).

Major growth initiatives

For relatively established startups looking for capital to fund major growth initiatives, there are several different options. First, they could choose to obtain a long-term SME loan. Companies can take out commercial loans or corporate bonds to fund projects they deem appropriate. Although these financing vehicles can squeeze corporate profit margins, they allow companies to accelerate their growth by pulling forward a portion of their future profits for a relatively low cost. Commercial banks and private equity firms are known to provide these types of financing, while some online players also deal with these types of methods.

For those whose profit margins cannot easily withstand the added strain of a business loan, they can opt for alternative financing methods like equity financing where they sell some of their business ownership to investors. VCs would be the most obvious source of this funding, but online platforms like Fundnel also offer a venue for equity fundraising, as well as other alternative methods like convertible bonds, revenue sharing and debt. .

For specific types of growth projects that require companies to purchase equipment they do not currently own, companies can look to asset financing as a source of capital. Asset financing is a type of commercial loan that is specifically granted only to borrowers who have already signed work orders and only need additional equipment to fulfill the order they have received.

Due to this nature, these loans are considered less risky and tend to be cheaper than other loans. While traditional banks are also known to provide these types of financing, small businesses that don’t have easy access to commercial banks can turn to online players like KapitalBoost.

It’s all about compromise

Overall, you need to assess which type of business financing is most appropriate for your situation. Short-term problems tend to be best solved by short-term debt, and vice versa. While young companies tend to limit themselves to equity financing, more mature and larger companies should assess whether equity will be cheaper than debt.

In a bubble market where venture capitalists are willing to invest at extremely high valuations, stocks could be a cheap source of funding. If the founders have high confidence in their growth prospects, issuing debt might be more economical.

When it comes to finding capital to help your business stay afloat and grow, it’s important to remember that no one type of financing is always the best. For example, turning to famous VCs could help raise your company’s profile and provide you with valuable connections without cutting into your profit margins.

However, it will also cost you a significant chunk of your property and also put incredible pressure to grow your business in a very short time. On the other hand, loans can be “cheaper” than equity since you can keep all your profits for yourself, but they are only available to businesses that have predictable profit levels that can satisfy the rigorous debt repayment schedule.

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The article 3 Ways Startups in Singapore Should Evaluate Different Funding Options originally appeared on ValueChampion.

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