Business financing options
There are many incentives to starting or continuing to be in business. It could be a passion, inheritance, necessity or pure intuition. Many people are now finding it important to venture out of their comfort zones due to mass unemployment statistics both in the developed and developing countries.
In the United States of America, for example, the Bureau of Labor Statistics of the US Department of Labor recorded that from January through August 2008, the, the total number of mass layoff events (seasonally adjusted), stood at 12,542, and the initial claims (seasonally adjusted), stood at 1,274,765. These were the highest for the January to August period since 2003. A majority of these, and even more, are now seeking business financing options.
Not to worry. Once you have come up with an idea, it is possible to adopt different but available ways of financing a business. From the following, a prospective business owner and these already in the game will be able to make an informed choice.
Loans
Financing a business through loans is one of the most visible and also cheap options available to investors. Visibility is all about the flashy advertisements by commercial banks that we are accustomed to. It is therefore possible for investors to imagine that these are the most accessible. This may true or untrue depending on the applicant and the bank approached.
Loan seekers are expected to fulfill several preset conditions in order to qualify. These include provision of security for the money advanced, a proper business plan, and audited accounts, amongst others. Using this business financing option is usually attractive due to the reasonable interest rates that will apply. However, as much as this will sound like a good idea, a proper look out and professional opinion is necessary.
Angel finance as a business finance option
Many investors have used this financing option even though they may not be able to answer the question: who is an Angel? Well, these are individuals who have the necessary financial strength and are willing see the germination of a business idea. They may be broken down to three categories.
The most common is the family angel. These are family members who have been approached to finance a business. They are normally not considered to be the best due to the emotional attachment that they will have towards the venture. You will also find the relationship angel.
These consist of business friends willing to go through all the stages of the growth of a business and are generally good options for financing a business. They can also be idea angels. These are ones who will participate in both finance and the actual propagation of business growth. Networking is the surest way of getting angel financing.
Equity financing option
This refers to the business financing by selling on an owner’s interest in the business. Finding people who are willing buy the equity and the willingness of an owner to cede management control is critical when it comes to choosing an equity partner or shareholder.
Please note that the form of business association that you are running will be a great determinant when it comes to financing using this option. Some common examples of this will include: Venture capitalists, initial public offerings, private placements, franchising and employee share ownership plans
These mentioned above are major options of business finance. It is true to say that many more exist and that a thorough research on the basic principles of business finance should always precede investment.
References
- http://www.bls.gov/
- http://www.lloydstsbbusiness.com/finance/index.asp
- http://falseprecision.typepad.com
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