A turnkey business offers a less-risky and more-viable way for entrepreneurs to enter their chosen business segments. Unlike startups, turnkey businesses have been around for a longer duration and are more likely to have withstood the various market ups and downs. Furthermore, they are more appealing to buyers and investors making it easier to finance them and sell them when the time is right. While selling a turnkey business comes with its own set of stages and activities, funding the enterprise is important to keep it afloat and help it traverse the choppy markets. Reports suggest that over 70% of businesses fail within the first few years, mostly due to a lack of adequate funds. To help you finance your business, here are some of the options you can consider.
Bootstrapping
This is one of the most common ways of getting started in the business. In its very nascent stage, you might find it difficult to convince others to invest in your business. However, you do need to set it up and get it going else you will fall into a Catch-22 situation wherein investors will ask to see your business model in action before investing, while you struggle to get the seed money to bring it to life.
Many entrepreneurs choose to start their turnkey business with their own money. It comes with the freedom of no financial or decisional obligation to anyone else. However, there is a limit to how much money you can pump into the business, of your own accord. Moreover, liquidating all your savings is never a good idea as it is financially prudent to always have sufficient funds for a rainy day.
Friends and family can come to your aid too. While it is likely you will get a more convenient repayment window when you borrow from friends, it can also lead to tension or resentment later on. The choice entirely depends on you and the relationship you have with the person lending you the amount.
Banks and NBFCs
To complement your bootstrapping efforts, you can turn to a bank or an NBFC to borrow money. This is known as debt financing. If your need is not too high, then personal loans can do the trick for you. These are unsecured loans – no collateral needed – that can be applied online and come with competitive interest rates, instant approvals, quick disbursals, and a repayment tenor ranging from 12 to 60 months.
Larger amounts, though, will require you to offer some form of collateral such as the deed to your vehicle or property. There are a plethora of lenders out there. It is judicious to carefully understand and compare their rates, terms, and all other costs before applying for a loan.
Government or Corporate Grants
Did you know that the State and Federal Governments and several Not For Profit enterprises offer grants and commissions that can give the financing your turnkey business needs?
One of the biggest benefits is that such a grant does not require any repayment. On the other hand, the demand and supply are totally disproportionate here with thousands of startups competing for a handful of grants. Furthermore, there is usually a lot of opaqueness in the selection and awarding process.
Investors
High Net-worth Individuals (HNIs) have started investing in turnkey businesses as a way to expand and diversify their financial portfolio. This can be considered a form of debt financing as well, the difference being instead of borrowing from a financial institution, you are borrowing from an individual. While the rates offered by an HNI might be higher they tend to have a more open mind and a higher risk appetite than traditional banks. If you decide to borrow from an HNI, make sure your loan agreement is firm and clear regarding your obligations in all possible scenarios to avoid legal conflicts later on.
Private Equity Firms and Venture Capitalists
Apart from debt financing, you also have the option of equity financing for your turnkey business. The key distinction here is that you may not be required to pay fixed, direct, or recurring interest to the investor. Instead, they expect equity sharing or stock ownership as a return on their investment. Some may even desire a percentage of eventual profits.
The advantage here is that you can gain from their professional experience and not have to worry about repaying regular installments. On the other hand, depending on the nature of the agreement and the size of the funding, your autonomy in making business decisions can get restricted. Furthermore, you need to have a future-proof contract clearly defining the roles and responsibilities of each party. You will also need to establish a well-defined ownership structure and exit clauses for each.
In Summation
Several options exist for financing your turnkey online business. You need to carefully explore the merits of each, evaluate your current and future needs, and understand your capacity to repay before finalizing. Remember, you can have multiple rounds of financing. So, do not borrow more than you need as it is likely to add unwanted strain to your finances.
