Financing Your Business
Whether In the start-up or expansion phase all businesses need adequate funding In order to ensure success.when exploring your funding options,consider the following factors:
- Do you have an established business plan and pro forma?
- Are your needs short-term? How quickly will you be able to pay back the loan or provide a return on investment?
- Do you need money for operating expenses or for capital expenditures that will become assets,such as equipment or real estate?
Typically,financing is categorized into two fundamental types:debt financing and equity financing.As a third form of financing,some businesses eligible to participate in various business grant programs.
Debt financing means borrowing money that is to be repaid over a period of time,usually with interest. Debt financing can be either short-term (full repayment due in less than one year) or long term (repayment due over more than year). The lender does not again an ownership interest in your business and your obligatiions are limited to repaying the loan. In smaller businesses, personal guarantees are likely to be required on most debt instruments; commercial debt financing thereby becomes synonymous with personal debt financing.
Specific Sources of Debt Financing:
Friends and family are still your best source for both loans and equity deals,especially when starting up your business. They are typically less stringent regarding your credit and their exepected return on investment; however, have a businessplan and properly document your relationship on paper to avoid any future problems. Credit cards are a great tool for case flow management, assuming you use them just for that and not for long-term financing. Keep one or two cards with no balance on it and pay it off every month to give yourself a 30 to 60 day float with no interest, however, if poorly managed they can be quite expensive.
Bank and Government loans come in all shapes and sizes-from microloans of a few hundred dollars, typically offered by local community banks, to six-figure loans by major national banks. These are much easier to obtain when backed by assets (home equity or an IRA) or third-party guarantors (e.g, government sponsored SBA loans or a cosigner). If you obtain a line of credit rather tahn a fixed-amount loan, you don’t start paying interest until you actually spend the money. For more Information about apecific loan programs, please read further:
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