SOURCES OF CAPITAL/FINANCE
If you have a feasible business idea you want to implement, below are 13
windows of opportunity you can explore in order to finance your business and
1. Bank Loans
(a) Business Loans
The bank is often the first place small business starters think of when it comes to
financing. While some banks offer load to small businesses, some do not. It
depends on the policy of the bank and the criteria they have established to loan
money. Typically, a bank will loan money to a client if the client has collateral or
has impeccable personal credit qualifications or can repay the loan with any on-
going income other than from the start-up business.
The criteria banks use to lend money are the amount and purpose for which the
loan is to be used, the primary and secondary sources of repaying the loan, the
company date, such as management and operations, the financial data, which
includes balance sheets and cash-flow statements, your personal credit history,
and the viability of the company.
Most loan is usually secured by the equipment, personal or company assets, or
the land that has been purchased. However, some banks may ask for full
Getting a loan from a bank is difficult; you should know this up-front. Most
starters will not get it. However, if you can grow your business steadily over a
period of time, banks will be more inclined to lend you money because you have
proven you can operate your business. Many small business starters will simply
have to grow first before approaching a bank.
However, you may still get a loan. Some ways of enhancing your odds are to
appear well-dressed, calm, and answer questions honestly and directly, and to
have a killer business plan. Remember that honesty is the best policy. If the
bank turns you down, you can try other banks. Some first-time business start-
ups have gone to several, if not dozens of banks, before getting a loan. Be
patient and persevere.
(b) Personal Loans
Another option is to get a loan in your name, as opposed to the business name,
or a personal loan. The most popular types of personal loans today are home
equity lines of credit, both of which are based on the value of the equity you
have in your home.
2. Friends and Families
Often, a small business can raise money through friends and families especially
at start-up. Again, you should treat these people with professionalism and
honesty by explaining the potential risks and returns.
Another type of this source of financing is your business colleagues or other
business people you know, have worked with, or have networked within the
3. Sell Some of your Assets
Some people sell homes , cars, furniture, lands, or other possessions to start
their business. You will have to be careful here because you wouldn’t want to
sell something you will want or need later on.
Taking on additional business partners, either in the form of fellow incorporators
or limited partners, is another method of raising capital often, an investor will
agree to become a limited partner on the strength of your plan and your
personality. In this situation, your partner is strictly a financial backer. He or she
will want to see a return on investment but will not want to participate in any
other work of the company.
5. Government Agencies
The federal and state governments have a variety of department and programs
to aid small businesses. Information on these can be sourced from your state,
chambers of commerce of commerce and industry, etc.
Sometimes foundations and non-government organization offer grants and
incentive to small businesses
7. Venture Capitalists
A venture capitalists is an individual or organization that invests in companies
with potentials for growth and profitability.
Venture capitalists are professionals that are not easily won over. In order to
attract one and to sell your company’s prospects, you have to be a professional
yourself. Asides from meeting you, a venture capitalist will want to see your plan
and your financial (balance sheets and cash flow) statement. The capitalist will
determine whether your company has a records of success that will bring about
a future record of growth. If your company fits this profile, you might interest a
Those going into business for the first time may not be financed this way, so the
best way is to start your business, grow and then prepare a proposal with an
8. Part-time/Seasonal Job
A part-time job before, during, or after your start-up can provide capital and will
be proof to potential investors and lenders that your are serious about financing
9. Business Networking/Brand Name Sharing
This is where one or more businesses combine to share one brand name,
although each produces different goods. For example, let’s say a group of
automotive suppliers cannot get their products on shelves. They can sign an
agreement, put the common brand and logo on all products and use a combined
marketing/distribution system to sell the goods. This really works and can
increase each participant company’s market share dramatically.
Although this is not capital parse, it’s a way of helping you sustain your business
at start up. It is also a way of increasing cash flow and revenues.
10. Us Another Business
Maybe you have one part-time business with cash flow but limited growth
opportunities. This business could provide eventual start-up capital for a future
business with greater growth potential.
Business by barter is relatively new and growing. Here, participating companies
exchange goods and services.
If you are unable to raise any capital by yourself, you might have to fraise a
business plan for presentation to a financier or put your venture on hold. Again,
the best way of getting money is to first raise some personal money. That is why
most businesses must start small. Don’t give up, through some companies have
started small and grown big while some started big and failed. In essence,
capital is very important, but must be used properly in conjunction with your
plan and your goals.
12. Equipment Leasing
This is basically a loan in which the lender buys and owns the equipment and
then “rents” it to a business owner at a monthly rate for a specified number of
months. At the end of the lease, the business owner may purchase the
equipment for a current market value, or continue with the lease.
13. Hire Purchase
Hire purchase is an arrangement whereby the buyer asks a finance company to
buy a piece of equipment, hires it for a specified period and then exercise the
option of buying it for a nominal sum while all hire charges and installments are
being paid. As long as the installments are being pad, the hirer has right to use