Thursday, August 2, 2012

How to Finance a Small Business Start Up | Modern Dignity - The ...

Small Business Start Up

Getting the financing needed to start up a business is the most challenging task for new entrepreneurs. They may already have come up with a brilliant product and marketing ideas, but many people can?t push it through because they need funding. Fortunately, there are some start-up business financing options that they can try. However, they should understand that each option has both pros and cons. They must weigh them carefully before making this big decision.

Friends and Family

Friends and family are always the best people to ask for help. This is mainly because they are less stringent when it comes to requirements. However, it is appropriate to disclose business plans with them and prepare necessary documents to avoid misunderstandings in the future. These people are often the first option before a business owner seeks help from commercial lenders.

Debt Financing

Debt financing is a widely-used financing option for small start-up businesses. However, business owners should meet all the requirements set in order for them to be qualified for a loan or credit line. This type of financing involves agreeing to an interest rate and repayment schedule.

To increase the odds of successful loan application, business owners should prepare a comprehensive business plan. They should be well-versed in their market. They must convince the lender that they can pay the debt in the agreed timeframe. Another important strategy to ensure debt financing application approval is to establish a relationship with the lender before the loan request. However, applicants should understand that lenders may require personal collateral.

Equity Financing

Equity financing means selling a part of the company to a financial institution in exchange for cash. In this type of financing, the investor has the greatest risk. This is because they can lose money when the business fails. On the other hand, they get a much greater return on investment if the company succeeds. Equity financing can be more expensive for a successful business.

Angel Investors

Angel investors are rich business people who help fund small companies. They are called angels because they are typically friendly to start-up businesses. They are patient about their investment returns. Most of the time, these angels invest in groups.

Additionally, angel investors offer more than just financing. They open vast networking opportunities at the same time.?However, business owners should convince them that their plans will succeed. Angels are entrepreneurs too. They actually become angels because of their tremendous success in business.

Credit Cards

When managed properly, credit cards can be a good source of funding. Card holders can make the most out of their balance and use it for the business. However, they must pay their cards off every month to avoid the interest. Some cards have low introductory rates that they can take advantage of. Unfortunately, credit cards can be very expensive for those who cannot manage them well.

Bank Loans

Many community local banks offer micro-loans that are sufficient enough for small start-up companies. They are easier to obtain than applying for big loans at major banks. Usually, community banks require applicants to back their loans with assets like an IRA or home equity. ?Applicants approved for a credit line instead of a fixed loan amount start paying interest when they start spending the money.

Private Lending

Private lenders are more willing to provide loans for high-risk borrowers. This is especially true if they see great potential in the business. They are less stringent and guarantee fast approval. However, these lenders offer loans with limited amounts and high interest.

The Bottom Line

Businesses must choose wisely. These financing options come with risks. They may provide the necessary amount to start the business, but there may be a lot of interest to pay. Others may offer loans that are too small or too large. With this, business owners should be sure about the amount they need and their capacity to pay before they choose a lender.

Additionally, funding does not guarantee success. Many businesses that get a sufficient amount for funding end up with nothing. This is because they are not able to handle their finances properly. They should stay firm with their plans and avoid unnecessary expenses.

There are many channels available to seek funding from. It only takes a little effort to research them. Most importantly, business owners should understand how these institutions work. They should secure funds from reliable lenders that provide mutual benefits.

Author Bio: DegreeCouncil.org is a web resource center for helping students learn how to go back to school.

Source: http://www.moderndignity.com/how-to-finance-a-small-business-start-up/

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