Choosing the Right Source of Funding

Needless to say, capital is essential for your business to go far.

Entrepreneurial success is often dependent on not just a solid product or service, but also a comfortable financing model. With the current climate, entrepreneurs are facing a difficult funding environment with investors not writing as many cheques. Nonetheless, fret not as there are funding options made available.

Bear in mind that not all platforms of funding are created equal. Ultimately, the type of funding you opt for can determine the rate your business grows, your financial obligations, as well as the ownership you retain. Here are some tips to help you decipher which is the right source of funding for your business.

1. Determine your profitability path

Since every business trajectory varies, determine your capital needs by factoring in your operational overhead, infrastructure needs and startup costs. Start with a business plan to delve into the level of financing you need and chart your path to profitability with the essential financial paperwork. Assess initial costs, cash flow needs, income projections and a breakeven analysis.

2. Work out the amount of capital you need

With a better understanding of your financial status, you'll be able to have a good gauge of the amount of capital you require and work out the income targets accordingly. CB Insights revealed that 70% of upstart tech companies fail around 20 months after first raising financing (with approximately $1.3M in total funding).

Additionally, be careful of undercapitalisation and work out your projections as accurately as possible. Closer to home, Rocket-Internet backed salon booking service Vaniday Singapore has shut down in Dec 2019 despite reporting a 7-figure round in June. Its CEO shared that the company has not been profitable since its first investment in 2015.

3. Look into the different types of funding available

Explore the different funding options to determine the most ideal method to suit your situation.

Bootstrapping: Self-funding from your savings is always encouraged if you can afford it, since you do not have to relinquish any control in your business.
Friends and family: Tap into your inner circle and test waters to see how they react to your business idea and recruit early buy-in.
Loans: If your business is in need of a temporary flow of cash, funding it with loans means it will be strictly debt-based without the need to hand out a portion of your business ownership. Consider loan options from RHB to help you achieve your financial goals:
Venture capitalists: Venture capitalists funders are on the lookout for business with the potential for good returns, investing a huge capital in exchange for equity. When pursuing this option, review your investors and look into their reputation and track record.
Angel investors: Angel investors are typically those with industry experience and are looking to invest their own money, so these investments are usually smaller than venture capital funding.

4. Consider the financial implications

Think ahead and consider how your funding option will impact your business.
For self-funded businesses, work out a plan to gradually rebuild your personal savings and establish repayment plans by loan agreements. If you’re running a startup and have exchanged a portion of equity for financing, think of it as a means to expand your business.

5. Raise more funds than needed

Your business plan will be constantly changing due to circumstances, so you should always have extra funds to help you attain your next milestone. Especially in this volatile situation, always have a backup plan so you can continue to get your business going even with unforeseen obstacles.

While fundraising might be a feat, there’s a silver lining in there. Once you’ve managed to fund your business, you can then look forward to what lies ahead! Give your business the edge to stay ahead with RHB’s Enterprise Financing Scheme, SME & MME Commercial Property Loans, Overseas Financing, SME Business Loan and Islamic Financing options. Find out more:

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