The issue of raising capital in the financial market is a key aspect of both business development and the development of financial markets. This article will explain the best ways to raise capital for a company.
When do companies need to raise money?
In current conditions, the attraction of financial resources in the financial markets is one of the additional sources of financing the enterprise’s activities. Moreover, the successful development of financial markets leads to the constant and unhindered transformation of savings into investments, which is a topical issue for any country with a developed economy.
Regardless of the type of activity, companies go through:
- the initial stage – is the development and launch of products on the market; at this stage, according to statistics from researchers from Startup Genome, up to 90% of startups are closed with losses for investors;
- the expansion stage, which occurs after the development and implementation of the business model; it is characterized by sales growth and constant cash flow;
- the stage of growth, when the company receives a stable income, strengthens its position in the market.
Raising money is essential at every stage. At the start, it helps the company create the first samples of the product or test the chosen business model. Then, promote the product or enter foreign markets at the expansion stage. Investments in a mature enterprise ensure production modernization, competitors’ absorption, or the search and development of new directions.
The common ways of raising money
When attracting financing, you need to decide whether it will be a loan at interest or equity participation of the investor. To do this, weigh the pros and cons of each option. Equity partnership is less beneficial for the company owner since he will have to give part of the profits to the investor constantly. At the same time, participation in the business of third-party people or companies allows you to optimize work processes and establish relationships with other market participants.
So, there are the following ways to raise money for a company:
- IPOs
Large and wealthy companies with funds, time, and good management can be used to raise IPO financing. Such financing has many advantages, and its presence in the stock market plays an important role for large market players. This method, of course, is not the easiest, but with its help, companies attract financial resources and reinforce the prestige and trust in the brand in the modern market. Moreover, this type of financing can be called the safest in terms of the financial independence of the enterprise.
- A syndicated loan
It is the most flexible instrument for raising funds on international capital markets, which allows a company with good credit quality to obtain maximum liquidity on the most favorable terms. In addition, its use contributes to creating positive credit history in the market. Thanks to this, companies will demand syndicated lending at any stage of the economic cycle.
- Crowdinvesting
It is a way of financing a business when people and non-financial organizations invest money in a company through special platforms on the Internet. In return, they receive shares or bonds of the company. Online platforms through which money is collected are called investment platforms. They help entrepreneurs prepare an offer for investors, issue securities, receive funds for a project, and remotely agree with those who intend to invest in their business. This financing method is unsuitable for any organization – the time of its existence, turnover, and investment attractiveness are important here.