Raising Further Business Finance

Introduction to Raising Further Finance
Raising finance is not simply an issue for start-up and fledgling businesses. Whilst raising the finance is a necessary part of starting a business, most successful companies will also require a secondary stab at fund raising. Invariably, a successful business will want to expand or to start an additional new venture which will require a one-off financial input, probably from an external source.

Internal Financing Options
After a business has been in operation for several years and has established a positive track record, it is a lot easier to persuade lending institutions that your venture is viable. It may even be possible to secure additional debt on the assets of your current business, although the risk is that if the new venture fails, you stand to lose the existing business.

If it is known that a new venture is about to be launched, it is possible for the current business to retain profits from operations to finance the new venture. This is clearly a reasonably sound way of going about financing future ventures. However, it does require the permission of any shareholders or other investors in the original venture. This is because instead of receiving a share of the profit, they will now be expected to receive less profit in return for the further investment.

Alternatives for Further Financing
A quoted company is able to raise additional finance by issuing more shares, although this should be approached with caution as it may have a negative impact on the existing share price. Furthermore, there are rules which need to be adhered to relating to the number of shares that can be issued.

Venture capitalists, business angels and banks are all good options for achieving further financing as you now have the added advantage of an established track record and several sets of accounts that prove you can successfully run a business venture. Once you have the track record, you should be able to obtain financing at a more cost-effective rate than a start-up company is able to achieve.

Venture Capitalists (VCs)
Venture capitalists tend not to invest in start-up companies largely because venture capital companies require a degree of certainty. In particular, VCs were badly stung during the dot com collapse. Consequently, they now have very stringent rules on what they are able to invest in, meaning that anyone hoping to secure venture capitalist investment will have to prove that their business is very solid.

A further option is to enter into partnership with another company that may have the financial resource or the infrastructure and is keen to link in with someone with a new market or idea that can assist them in increasing their market share.

Summary

  • At some point, you may be in a position where you wish to raise further finance for a business expansion
  • As a company with a track record, you are now in a much better position to obtain this additional finance
  • Try approaching potential partners and venture capitalists for good value financing for your next business move

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