Funding (part 4)

Hello! We came up to Funding (part 4) where today we will look at the less popular means of funding but nevertheless existed in the open world and ready to be accessed.
You can always revise the previous section here.

The two means of today article are:

  • Credit Cards
  • Donations

Credit Cards

The Credit Cards are used for funding nowadays, however, they might not be the first point of call when you think of funding your own idea. There are many sides to the argument for and against and many established businesses would divert their attention away from this funding route. However many companies, even the likes of Google, have reverted to the usage of Credit Card borrowing to progress through the stages of their development.

What does it actually mean? It is rather simple, you borrow money as you would in other cases but this time you have a framed limit and are more likely to incur high-interest rates, but you feel less restrained to spend your money on a particular need. Most of the time – anything goes, for as long as the limit is not breached…even then you can make a direct contact with CC provider and get a buff.

Credit Cards are a notion of today. Sadly people around the Globe have changed their buying ethics and don’t tend to live within their own means no more. They desire lavish items and cherish their wants through purchases of all kind. As technology moved on and tracking borrowers became easier as well managing the administration of the process became simpler and cheaper – the Banks (originally) have started issuing a new form of an account. Credit Account. It is a type of a borrowing agreement which you can opt into under jolly terms of “get what you want now” and “pay-later”.

It is a minefield. Despite heavy regulation and never-sleeping watchdogs over the sector (or at least this is the case for most developed countries), there are still those who take the opportunity to fool the borrower and if you are not careful you can get trapped into a repayment rate.

On the other hand, as mentioned you are free to buy anything. Many retail outlets offer Credit Agreements of their own and issue one with a card to be utilised in their store/chain. Some banks would not even ask where or how you spend your money for as long as they are getting the pay-ins on time.

So let’s look at Pros & Cons…

Pros:

  • Very simple to set up. You would not need to have a business plan, a trade history, and in most cases, you would not even have to show a great income to become eligible for a Credit Card.
  • The huge scope of providers. You are not limited to a handful of high-street banks which leave you on the kerb side if you don’t’ meet their criteria. Independent Financial providers are flogging the market with catchy offers competing on rates and services.
  • The more you are in debt – the better! Your credit history amounts to the record of your ability to pay. You might be on miniscule income but if somehow you are managing your repayments on time you will find it easier to borrow more and more every time.

Cons:

  • You might end up paying 300%+ of the sum originally borrowed. You MUST read the terms carefully. Sometimes, event through stable re-payment you will end up paying twice or three times more than you have hoped for and at some point, your investment might become a loss due to the interest rates incurred, or on-going administrative charges or else.
  • “Hello, eternity!” There are loan sharks, hidden-terms, and many more nasty things out there who might get you in never-ending debt where you will be offered sexy start-up terms (even 0% APR for the introductory period) and end up paying until the end of eternity. Especially in the case where the company you have borrowed through went into liquidation and has been taken over, where your terms might be rightfully changed and new conditions attached under new management.
  • “Credit History ruined – 10 years in tatters” Because it is easier to apply for Credit Card then other forms of borrowing, you might use it to invest into machinery, goods, or else and business might not move, or the deal might not go through so you might not get the return on your investment but the money will still have to be paid back and the repayment liability might cripple your finances and force you into liquidation.

Donations

I will be very honest there is not much to tell. It is as simple as it.

Someone likes you, likes what you do or your overall cause and decided to support your struggles through donations. Donations can be public or private, personal or corporative. It is the form of lump-sum of money or in monthly instalments.

Depending on the type of your business, you can solemnly survive on donations. An ex-colleague of mine runs a charity with an annual budget of around £3m. He is a not-for-profit and does not provide any commercial service at all. He lives off donations and off charitable projects only.

Pros:

  • You are receiving free money just for the sake of it. Clearly, your aspirations and the work are positive and ‘emit light’ which shines brightly for those in need, they like you, they support you.
  • Large lump-sum might make a sweet top-up of your account and in an active 3 months of donations-hunting, you might fulfil your annual budget target.
  • Tax-free! If you are a business carrying out activities of a charitable nature – you will be exempt from tax entirely or bound to a minimum rate which can be scrapped further with additional novelty things.
  • “Quantity vs Quality” = Continuous stream. By that, I mean standing orders of people who have committed to donate a £2 to your cause but have never bothered to cancel their bank standing order to your account. Because £2 per months does not bother them much, or that don’t simply notice it – they do not consider it is sufficient a hassle of contacting their local branch and cancelling outstanding pay-outs. This means that you might build up a constant stream of ‘tiny’ amounts entering your account.

Cons:

  • You are bound by others loving you. You must position yourself in the best light and constantly pontificate on your achievements. It is not like simple advertising of a product or service of a business. To receive donations – you must do something real and something which amounts to “good” status.
  • You are limited in your capabilities. If your business is a charity and you are reliant on donations, your ability to expand or deliver extra is curbed by the amount received from third parties. If you are losing your pledges or struggling to bid for funding – you might end up in a position of having to wrap up some operations or cancel the delivery or a project, even half-way.
  • ‘Dancing to their tune’ You will be bound to deliver the services people or organisations are expecting from you. Because they are making a donation, they might be watching your progress closely and if you engage in an ill-partnership or the wrong-doing – your name will end up surfing the media in no time. It is a type of popularity which you don’t particularly want as it will stick forever, whatever you will decide to do in the future. And sometimes what you might see as a “cost-saving” exercise and a good deal – the donators might see it as a “wrongdoing” or “unethical” approach.

I hope that helps and gives you the flavour of what Credit Cards funding and the Donations are.

So far I have lightly touched upon the

  1. Bootstrapping + Friends & Family
  2. Commercial Loans + Commercial Mortgages
  3. Equity Financing + Government Funding Scheme
  4. Credit Cards + Donation (the stuff you just read)

Funding (part 5) is on it’s way!

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