Ways For Business Funding With Business Financing

Having your own business can mean that you are your own boss; you do not need to deal with horrible bosses who tell you what to do. You also handle your own time and you do not need to rush deadlines nor meet reports unlike any other employees do. Yet you have the challenge on how to make it work from planning the start of your business to building an enterprise and keeping it well-maintained for years to come and ensure that you are gaining profits instead of losing. A business is a great challenge for you to test your skills, develop your management and leadership abilities. It can also be your ticket to success and wealth as long as you make right decisions and handle all things well. However, even if you have the heart and the skills for a business to grow but you do not have any resources, it might be a problem since you can never start a business without a starting capital.

 

business funding

 

Business funding can be quite a tricky challenge that you need to pass first before you can proceed with any of your plans. It is an important factor because it will be your start-up money that can either make or break your business and the money that you need to roll for the first months of your operation.

There are a lot of ways for you to finance your business as long as you know how to look and check the right strategy to obtain the funds for you. You may borrow from your friends or family. But if you want to accomplish it on your own, you may consider business financing or business loan.

Business Financing

This is a general term used when a person looks for a way to get hold of money needed to start or improve an already established business.

Traditional Small Business Financing Options

1. Debt Financing

In this type of finance, you borrow a certain amount of money from a lender which can either be credit unions, banks, etc, for the money that you need. The duration of the payment method depends on the agreed terms and conditions between you and the lender.

If there is one great thing about debt financing it is that you can do whatever you wish with the money in your hands to cater on different areas of the business that you want to focus without the lender having to say anything. The downside, though is the fact that lenders might provide a high interest rate or hard-to-cope terms that will become a burden for you to deal with. If you have used something as collateral on your loan, there might be forfeiting of assets if you are unable to pay.

2. Equity Financing

Equity financing means that you need to sell a part of the company to someone such as family, friends and investors in exchange of the money that they will provide to finance your business.

Equity financing is great, considering that you do not have any debts to pay off and you do not need to pay the financer just in case your business will go bankrupt. Disadvantages of equity financing may include the fact that the lender will have a share on the profit of your business and you do not have any full control of the business since they can make amendments, changes and suggestions for your company.

Alternative Small Business Financing Options

1. Rollover Retirement Fund

The use of retirement funds to start a small business or improve an existing one is slowly becoming one of the new means of business funding. You need to note that this type of financing is not a loan from your retirement account. However, you might need the guidance of a professional when you use this business financing strategy to ensure that appropriate funding is made.

2. Business Loan

A business loan is more ways than one similar to business financing as some methods are also based on the traditional financing options.

Bank Loan: As an entrepreneur, you may seek loans from a bank that can either be secured (with collateral) or unsecured (without collateral). Since you are dealing with banks, they might require you to submit your business proposal including plans, accounts and balance sheets to ensure that your business can pay for the amount plus the added interest that you will loan from them. If in any given circumstances that you cannot pay your loan from a secured account, they may take away your collateral as payment.

Mezzanine Finance: For mezzanine finance, the lender will lend you money but secure the loaned amount through its equity. If you will not be able to pay the lender the amount in time of your agreed terms, you risk the control of your business as they may claim part-ownership of your business.

Asset-based Finance: Unlike other forms of financing which focuses on the ability of the borrower to pay for the loaned amount through credit records and your business’ earnings, this type of loan focuses on several assets you have such as buildings, stocks or even amount receivables to ensure that even if you are not able to pay them back, they can still go after your assets as payment.

Invoice Finance: Invoice financing uses outstanding invoices to borrow money from the lender. This can either be invoice discounting or invoice financing. The lender will charge interest on the amount borrowed until the invoice you have provided is paid. In invoice discounting, you hold and control your debtor ledger and track debts yourself. While in invoice factoring, there is a factoring company which takes hold of the debt ledger and has its own credit team to track and chase after the debts.

Business financing and business loan are two great ways to obtain funding for your business. Just choose the right and suitable funding for you which you are confident enough that you can pay within your resources to avoid any problems in the future.

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