On Obtaining Small Business Financing The lack of financial funding or start up capital is what prevents many aspiring entrepreneurs from executing their brilliant business ideas. Are you one those aspiring business owners who are hindered by finances? Would you like to learn more about the different business financing options that are available for you? Read on and find out. The Importance of Sufficient Capital True enough, one must not quickly jump in to a business without considering the consequences. Having sufficient funding or a reliable financial resource is crucial especially on the initial stages of the business. As your business tries to establish footing in the market, you will be confronted with different costs and expenses. Thus, without financial aid, you may find yourself soon stuck in debt or forced to give up the business you’ve started. Business Financing Sources – Equity and Debt Financing What are business financing sources? There are two basic types of business financing sources- the first one is equity financing and the second is debt financing. Examples of equity financing include angel investors and venture capitalists that are willing to provide funding assistance for new and established businesses. Angel investors invest their money to smaller businesses with great potential and they become shareholders of the company’s profits. Similarly, venture capitalists invest money to help new entrepreneurs with promising business ideas. The difference with venture capitalists is that they can provide much higher investments and they are willing to take bigger risks. Debt financing, as its name implies is a debt or loan borrowed by the owner of the business. Bank loans are the perfect example of this type of financing. When you obtain a bank business loan, you are expected to pay back the money you borrowed according to the bank’s terms. The repayment period may last from one year or more depending on the amount of money you borrowed. Alternative Financing Options Small business credit cards can also be considered as debt financing tools. With a business credit card, you can make purchases in advance even without cash. Business credit cards work pretty much the same as personal credit cards in a way that you can pay off your balances in installments. Nevertheless, business credit cards usually offer a higher credit limit. Each time you carry over your balance for one month to the next, you automatically incur the additional interest on your debts. Thus, business owners must learn how to use their business credit cards wisely. To avoid getting stuck in debt, submitting credit card payments on time and staying within the given credit limit are two important actions that must never be neglected.
These are the business financing options that you can get if you plan on venturing into business. In most cases, debt financing is chosen because they are easier to obtain. Nevertheless, finding angel investors or venture capitalists is worth the try. Even if it may take a while to find potential investors and complete the process, equity financing frees you from the responsibility of making repayments.
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