What are the 7 sources of finance? Finding financing for your own project can be a great challenge, whether in order to increase capital, expand your current project activity, or start a new project. Therefore, we have identified the most used methods for financing small projects.
What are the 7 sources of finance?
In the following lines, we explain what are the 7 sources of finance:
Support funds and loans for small projects
In order for the government to support and remove obstacles facing individuals to establish small and emerging projects, some government agencies or funds offer financing programs for emerging and small projects at the lowest cost and facilitated procedures. Among such funds: The Saudi Industrial Development Fund.
Funding from friends or family
Family and friends are the most reliable people for what you do and what you want to achieve, and they are the best sources of finance, and obtaining financing from them may be a moral and material support for your project instead of other parties such as banks.
Which must study the project in all respects to ensure its success before approving funding. Also, financing friends or relatives may be less expensive and risky, as financing can be in the form of investing a certain percentage in the project.
Bank loan
You can benefit from the loans provided by Saudi banks to small and medium enterprises, sources of finance. However, these loans require several documents such as the company’s business plan, the value of expected profits annually, and other documents that help in evaluating the company’s credit status and its ability to meet its financial obligations.
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Credit card
The credit card enables you to finance the company’s expenses in the short term, but if you are late in paying the amount due, this will affect the company’s credit standing. So some consider that this method is fraught with a high degree of risk. That is why if you use the credit card to support the company’s cash flow, you must commit to paying the amounts due regularly.
Crowdfunding
It is one of the methods of modern sources of finance for small and emerging projects (crowd funding), where the owner of the project presents his idea in detail on some specialized websites for a certain period of time, and then those interested in the idea contribute through investment or financing.
Factoring
It is one of the sources of finance method by selling the company’s receivables/customer invoices to a third person (called a factor) at a reduced rate in order to get cash in advance.
Factoring differs from a bank loan in that it focuses on the due value and not on the company’s reputation or credit status. It is also not considered a loan, but a purchase of assets, and it includes three parties, while the bank loan includes only two.
One of the disadvantages of this method is that the factoring service fees are estimated at a certain percentage of the amount or the value of the invoice and are usually more expensive than bank loans.
Collection of future profits
The sources of finance method is based on presenting your products and services in the market or websites, and then collecting an advance part of the sales value as a deposit. Which provides you with cash flow by collecting part of your future profits. This is one of the best ways to get cash flow away from interest or fees.
Venture capital
Or what is called venture capital is capital from individual investors or capital funds specialized in investing in emerging companies in return for owning a certain share of the company.
