Dear Entrepreneur,
Raising capital to grow a business can be challenging and time-consuming. There are many sources of cash, ranging from government grants, to bank loans, private equity, or a stock market flotation. The biggest problem is deciding which is best for you.

GRANTS
Grants are a highly cost effective way of financing a business. Grants are given to firms for a specific project, rather than for general business improvements. And they only cover part of the costs, so companies have to provide the rest of the money themselves.
Most grants are cash payments, paid in arrears at key stages throughout the project. The biggest advantage is that they do not have to be paid back and they do not incur interest.

BANK LOANS
Individuals looking for start-up capital, or small firms seeking finance to pay for assets such as computer equipment, machinery or cars could look to their bank for the cash. But there are drawbacks :
Banks impose strict terms and conditions on most loans. In some cases they may even insist you offer some sort of security. So you may be required to secure the loan against the assets of your business or even your home.
Bank loans are not very flexible, so you may find yourself paying interest on funds you are not using. You will also have to make regular repayments, which may make it hard to manage cash flow if your customers do not pay their bills on time.
PRIVATE EQUITY OR VENTURE CAPITAL
Private equity firms and venture capitalists are looking to invest in business with strong management and good growth prospects. Private equity investors tend to invest in a business for the medium term. In practice this often mean three to five years, although they may invest for far longer or much shorter periods of time.

Unlike lenders, they tend not to have rights to interests or to be repaid at a particular date. But they will want a share of the ownership and in some instances may demand an element of control of the business. They often insist that a non-executive is appointed to the board. This is not necessarily a bad thing. If you do your homework and bring in an external investor with experience in your sector, then you could be adding another dimension to your business by beefing up senior management expertise. And this can be invaluable in terms of brainstorming for new ideas.

STOCK MARKET FLOTATION
A stock market flotation involves selling shares in your business on one of the stock markets. It is important to remember that an initial public offering (IPO) is not an exit; it is the beginning of the next stage of growth for a business. Companies considering a stock market flotation must have strong management, a healthy track record, and excellent growth prospects.

The main advantage of a stock market flotation is ready access to funds. Flotation may also add to your company’s credibility and raise its profile. It also provides an opportunity for business owners and other investors , such as private and equity backers, to realize their investment. Having your own traded shares may also help you grow business because you can offer shares as well as cash in any potential takeover bids

CONCLUSION
Choosing the right type of finance for your business is incredibly important. You must have a thorough understanding of what stage your business is at and what you need the money for before you pursue any of the options. A lot will depend on whether you are funding a start-up, buying an asset, seeking growth finance, or looking for an exit.

Yours Sincerely,
Kudi Konsult
Partner in Progress