Running a business is no small feat, and when that business is successful enough to grow into a large corporation, significant amounts of capital are needed to keep it moving in the right direction. Corporations typically have several employees, production facilities, inventory warehouses, brick-and-mortar retail locations and a substantial online presence, all which require funding on some level to maintain.
Finding the right funding for as a large corporation can be challenging, but it is helpful to start with a basic understanding of the options available to big business.
Here’s what you need to know about strategies for getting funding as a large corporation.
Traditional Bank Loan
Just like individual consumers and small companies, large corporations have access to the funding they need for business expenses through borrowing. The most common way to borrow money for business, whether that be for growth capital, overhead expenses, or equipment, is through a conventional bank loan.
With a corporate bank loan, the business applies to a financial institution for a lump sum of money, and it promises to repay the amount borrowed plus interest over a set period.
While bank loans for corporations are the most straightforward type of business funding, they are not always easy to secure. Financial institutions have strict requirements for revenue, other outstanding debt obligations, and length of time in business that many corporations cannot meet.
However, if a bank loan for a corporation is approved, it is likely the loan terms and interest rate will be the most favorable compared to other funding options.
There are also options for corporations with less than stellar credit track records through specialized online lending platforms.
Debt Issue Funds
In addition to borrowing through a conventional loan, corporations may find it beneficial to raise funding through debt issues. With this funding option, corporations accept funds from investors and promise to pay interest payments in exchange. When a debt issue matures, the corporation pays back the total value of the initial loan.
The process of offering a debt issue as a corporation can be lengthy and costly, as it requires the help of a securities firm or bank to design, create interest, and implement the deal for investors. Debt issues can, however, be more accessible to large corporations who may not qualify for or want a traditional bank loan.
Giving up Equity
Corporations may also utilize equity as a way to raise funds for business operations. Equity is simply assets minus liabilities in business, but when it comes to funding, this term takes on far more meaning.
Corporations have the ability to offer ownership interests in the form of equity, like stocks. Unlike borrowing money, selling a portion of equity in a business raising cash to fund operations or expansion without the requirement to repay funds in the future.
Equity in a company can be a lucrative method to finance large expenses over time, but it means the corporation is giving up some of its ownership in the business. Equity owners share in the profits generated for as long as they have an ownership stake, diluting what the corporate owners earn over time.
Similarly, equity shareholders may have voting rights that decrease how much power the leaders of the corporation have to wield.
Finding Collateral
Another common way for corporations to raise the funding they need for operations is through secured financing methods. One option is through factoring – the strategy of selling corporate receivable accounts at a discount to receive cash in hand.
Businesses that need to fill large orders well before they are paid for selling the merchandise or inventory can use factoring to keep the lights on. Typically, factoring involves a fee, calculated as a percentage of the total amount of receivables, which can dilute the effectiveness of such a financing strategy.
Similarly, large corporations can use other assets as collateral for a line of credit or loan through an online or traditional bank lender. Corporate equipment, vehicles, real estate, and other tangible items with value can be used to reduce the risk of financing for a lender, making it easier for a corporation to qualify for a loan.
Businesses should be careful in using collateral to back a new financing agreement, because failure to repay means the financing company has rights to the asset to recoup any losses.
Final Thoughts on Big Business Loans and Other Funding Options
Overall, large corporations have several methods for finding the funding they need for business expansion, working capital, or other small to significant expenses.
Before selecting a type of financing for the business, it is necessary to understand repayment terms, if they apply, the total cost of borrowing or giving up equity, and the ramifications if the corporation is unable to make good on its promise to the lender or investor.
