Financing a Business
Managing the finances of a business is one of the most crucial challenges an owner needs to face. Sound financial decisions judge the difference between profit and loss, or can say success and failure.
There are several options for financing a business. Generally, banks and investors are unlikely to provide funding unless the company has a track record of sales. Money that finances business is called capital. Bank loans approved for day-to-day business operations have characteristics that make them different from those approved for equipment purchases (long term capital or capital assets). Before the company plans for financing, it needs to know how much capital the business needs that involve writing a business plan. Both knowledge and planning are required to manage it well.
The financial statements are critically important to the success of a business. Financial statements can be used as a roadmap on business journey to economic success. Most business owners don't realize that financial statements have a value that goes far beyond their use to prepare tax returns or loan applications.
Types of Financing:
Basically, there are two types of funding sources available to companies –
1) Equity (Ownership) – In this, business owners give up some ownership in exchange for funds. Most small businesses use limited equity financing. As with debt financing, additional equity often comes from non- professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from venture capitalists. Relinquishing some of the decision-making and some of the potential for profits are the main disadvantages of equity financing.
2) Loans (Debt) - Many companies seek business loans, called debt financing, to launch or grow their business. There are many sources for debt financing such as banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. Traditionally, banks have been the major source of small business funding. Lenders commonly require the borrower's personal guarantee which ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business. For most borrowers this is a burden, but also a necessity. Loan (debt) financing option is the most common means of financing a small business.
Ways to Finance Small Business:
There are twelve common methods to finance a small business as follows:
1) Personal Savings
2) Credit Cards
3) Home Equity Loans
4) Friends and Family
5) Bank Loans
6) Lines of Credit
7) The Small Business Administration (SBA)
8) Vendor Financing
9) State Resources
10) Life Insurance
11) Retirement Plans
12) Grants
Sources : http://www.cbsc.org/osbw/session3/finance.cfm
http://www.sba.gov/starting_business/financing
There are several options for financing a business. Generally, banks and investors are unlikely to provide funding unless the company has a track record of sales. Money that finances business is called capital. Bank loans approved for day-to-day business operations have characteristics that make them different from those approved for equipment purchases (long term capital or capital assets). Before the company plans for financing, it needs to know how much capital the business needs that involve writing a business plan. Both knowledge and planning are required to manage it well.
The financial statements are critically important to the success of a business. Financial statements can be used as a roadmap on business journey to economic success. Most business owners don't realize that financial statements have a value that goes far beyond their use to prepare tax returns or loan applications.
Types of Financing:
Basically, there are two types of funding sources available to companies –
1) Equity (Ownership) – In this, business owners give up some ownership in exchange for funds. Most small businesses use limited equity financing. As with debt financing, additional equity often comes from non- professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from venture capitalists. Relinquishing some of the decision-making and some of the potential for profits are the main disadvantages of equity financing.
2) Loans (Debt) - Many companies seek business loans, called debt financing, to launch or grow their business. There are many sources for debt financing such as banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. Traditionally, banks have been the major source of small business funding. Lenders commonly require the borrower's personal guarantee which ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business. For most borrowers this is a burden, but also a necessity. Loan (debt) financing option is the most common means of financing a small business.
Ways to Finance Small Business:
There are twelve common methods to finance a small business as follows:
1) Personal Savings
2) Credit Cards
3) Home Equity Loans
4) Friends and Family
5) Bank Loans
6) Lines of Credit
7) The Small Business Administration (SBA)
8) Vendor Financing
9) State Resources
10) Life Insurance
11) Retirement Plans
12) Grants
Sources : http://www.cbsc.org/osbw/session3/finance.cfm
http://www.sba.gov/starting_business/financing
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