When it comes to starting your own business one of most important factors to take care of is your start-up business finance. There are many funding options open to you, with the main forms being categorised as either debt finance or equity finance.
It has been said that roughly 60 or 70% of all new business ventures call on their local bank as their first attempt to gain start-up finance. Gaining a bank loan to fund a business start-up is one form of debt finance. This debt finance comes in the form of a bank loan that typically has to be repaid at an agreed interest rate. The way in which banks usually agree to bank loans is by securing your loan against an asset. The way in which this works is if your business then fails to repay the loan, the bank can then claim the asset. So what exactly is this asset? An asset stands as usually a house/premises or equipment that is owned by your business.
The main problem with a bank loan is your company then becomes locked into a tight payment schedule that could cause problems for small businesses. There are also other forms of debt finance that are starting to prove just as popular with small business, such as credit cards and leasing. The term leasing refers to the borrowing of money to buy specific equipment/machinery. In this case small businesses borrow against the store sales.
All forms of debt finance means that you are borrowing against reserves rather then giving someone ownership of your shares. The main thing that you have to keep in mind when it comes to debt finance is finding the aspect of funding that is right for your business; there is however one flaw to this theory; what if no form of debt finance is right for your business? To answer this predicament I bring to your attention, equity finance.
Although the definition of equity finance slims down to pretty much being risk capital, it is the saviour of many small/new businesses who are either turned down for a bank loan or merely can’t keep up with the repayments.
Equity equals true risk capital as there is no guarantee that the investor will get there money back. The big advantage however is that the money that is invested into your business from equity finance never has to be repaid. Investors to your business are prepared for risk capital in return for a growth share of your business profit.
The investors behind equity finance give you the money that you need to get your business off the ground and to cover all aspects of your business start-up costs such as rent, the purchasing of equipment and staff wages as well as all of your utility bills for the first few months.
Whatever finance you decide to use for your business venture, make sure you make a realistic and informed decision based on your business needs. There is a lot to take into account and you need to ensure that you have all of your business information sorted before making any decisions.
By: Helen Cox
Posts Tagged Premises
Are you a small business owner? If you are, you’ll know that running a small business is one of the most difficult things you’ll ever do in your life. You’re the company’s spokesperson, owner, founder, advertiser and investor. You are its inspiration. It is your livelihood and your passion. And like all passions it is all consuming.
It has you crunching numbers when you should be sleeping. It has you sketching out ideas on napkins in restaurants when you should be eating. But like any love affair the irritations are worth it. You know that almost nothing in your life can match the highs that your business gives you. So stick with it! Give your business all your heart and soul. But be sensible when it comes to your cash.
Business Finance.
Starting your business can be incredibly costly. Buying the machinery, renting the premises, purchasing the advertising space… well you get the picture, you’ve been there. You are also probably aware that the cost of kicking your business into life is so high it can affect your businesses ability to grow later on down the line.
You’ve established yourself as a great business; you know you have the ability to expand and to grow. But you just don’t have the cash to do it. But what is the best way to get that much needed cash injection? You don’t want to be taken for a ride. This is why you need to know about business finance.
Small Business Cost.
The first thing to do when you start investigating small business finance is to look carefully at what you want to achieve. Having clear goals is one of the basic rules of success in business. If you are going to borrow money to support your business you must have a clear aim in mind. That way you can easily track the success of any investment and see how much, making your small business grow will cost. So, determine what you want. Are you purchasing assets, such as land or machinery, or stock? Or are you looking to improve your market position through advertising, or expand into new markets? Whatever you’re doing be clear about your goals.
Small Business Finance.
There are two types of small business finance available to you. The first is the more traditional and common form, known as ‘debt finance’. This involves your company lending money from a financial institution, usually your bank. There are up sides to this deal, you get your cash and you keep all your business. You do have to pay more back than you borrowed in the first place, with the onus on you to repay as soon as possible.
However, if you have clearly identified a use for your money this should present no problem to you and allow you to expand quickly. This is why it is the route taken by the majority of small businesses. If you fail to pay back the money you have borrowed however the consequences are severe, as part of the agreement will involve collateral. Often, this could be your house.
A less common option is that of ‘equity finance’. Ever seen the TV show Dragon’s Den? Then you’ll know what I’m talking about. Equity finance is when an investor gives you the cash you need and in return you give him a share, or a stake of your business. As the investor has no assurances, unlike the bank, he or she requires a much greater pay off if things go well. They want some of those profits! However if things don’t work out, you won’t be sleeping in the streets!
Your Future.
So there are plenty of ways you can offset your small business cost. Small business finance is easy to get if you pitch correctly and your business is heading in the right direction. Whichever mode of business finance you choose make sure you keep following the dream and your passion might end up making you millions.
By: George Butler