How to finance a business
A majority of prospective business people always grapple with problems of financing their business ventures. These problems are not classical to start ups only. They, in fact, traverse the inexperienced to the experienced spheres. Many answers will be sought. Many mistakes will be made.
All these will point towards the proven fact that it is complicated to start or progress a business venture if one does not grasp the means and ways of acquiring or bolstering the much needed finance. This discussion centers on how to finance a business for both incorporated and incorporated associations.
Unincorporated associations
These basically define a business that has not been registered by the relevant authorities and does not therefore have a legal personality. Its assets and these of the owners are not separated and in the event of collapse or financial difficulties the owners are directly liable. They do not enjoy the many benefits accorded to incorporated associations. Examples include some sole proprietorship.
Financing these businesses will usually involve the owners tremendous input. The reason is that many lenders will not want to risk their money and time on a venture that is not regulated by law. Therefore, personal savings and credit cards may work just fine. It is worthwhile to note that credit cards have their downsides which include overspending on unplanned requirements and pure exhaustion of credit.
Rigid terms or total lack of lending
However, anyone who elects this must be very cautious. Contracts entered into with such associations may be difficult to enforce. It then follows that banks and other lenders will not want to touch loan requests from borrowers who do not have a legal basis (legal personality). The reasoning is that these will usually defy some of the basic business principles including going concern, consistency amongst others.
Incorporated/registered associations
These refer to business ventures that have complied with the relevant laws and have their records with the appropriate authorities. They enjoy legal backing. Examples include Companies (public and private), partnerships and societies. Most of them will have accounts that will indicate their financial performance for the years traded. They may also have sound management structures.
Business financing for such associations will be easier to come by given the fact that most lenders will have an “inbuilt” trust in them. It is therefore possible to have angel financiers either at the outset or during the progress of the business. Angels are these individuals who have capital and can, if approached, participate in both financing and management.
Venture capitalists are also, usually, interested in businesses that have proper structures and show or have shown resilience in their field. They define professional investment groups and will be appropriate when an investor seeks much more than capital. They like to participate in the day to day management of businesses.
Businesspeople will also be interested in seeking finance from corporate venture capitalists. These are companies that specialize in investing in high risk ventures with a promise of high returns. They may be accessed through referrals or direct approach.
For established businesses, financing may be derived from the issuance of shares to the public through an Initial Public Offering (IPO). It is critical for anyone seeking to raise additional business finance through this means to seek permission from the relevant stock exchange regulators.
It is also possible for commercial banks to finance a business. Their conditions may include presentation of a business proposal, financial statements of the company, and collateral, amongst a myriad of others.
It is critical to seek guidance from professionals when choosing a business financing option.
References
- http://sbinformation.about.com
- http://www.myownbusiness.org/s8/
- http://www.powerhomebiz.com/Index/financing.htm
|
