Whether the business is small or big, there is no denying the fact that it needs fund to carry on its operation, because the returns in business are not stable. Sometimes the company or a firm can have huge profits; at times, it can lead to heavy losses too. Nevertheless, in the period of financial depression, each and every business needs a financial help to support in its working.

A brief comparison of small business with big business can clearly pinpoint the fact that there is an urgent need of funds more often arises in the former case as the returns are not constant. According to experts, financial crisis in the company can affect the working adversely. Therefore, it is of utmost significance to stop the effect of this financial crisis a small business can rely on loan for assisting them in need of funds. Small business loan plays a pivotal part in coming out of this situation of crisis. In addition, small business loan can also be used for starting a new venture.

Though small business firms are depicted as the backbone of the economy, but getting a loan for small business firm is not an easy task. Fact remains that lenders think number of times before lending a loan to the borrower as risk involved in small business is huge. It also consists of numerous formalities such as giving proof of income that depicts your creditability. Your credit history also plays a pivotal role in it. That’s why, the person with good credit history is always benefited in applying for a loan.

The most important point that the small business owner must take into account before going for a loan is flexibility in repayment. As majority of small businesses would experience irregular income for some time, so the flexible payment will help in making those repayments easier.

There is also a tremendous increase in the number of sources available for funding the small business in the last few years. As a matter of fact, traditional lenders like banks and financial institution also provide loans. In addition to that, loan can also be applied online, which gives you three main benefits

•Fast: you are just requiring filling a form and getting an instant match

•Easier: it plays a pivotal part in making comparison easier between various lenders available in the market

•Flexible: it is always advisable to choose the lender, which suits your needs.

Theoretically speaking, the rate of interest charged in small business loans is normally higher since there is threat to the lender about non-payment of installment on time. Therefore, one can fully trust small business loans for their dream project.

If there were only two reasons for a business to fail they would be poor financing and of course poor management or planning. You can’t over-emphasize the significance of financing your business. It is worth mentioning in this regard that financing the business is not a one time activity as some might think. As a matter of fact it is necessary whenever the need arises such as when expanding, modernizing etc. It is very essential that you understand the importance of exercising extreme caution and plan the utilization of capital. A wrong decision on your part in these issues can haunt your for the life of your business.

Are you clear in the mind that you want to raise external funds

For start-ups, it’s understandable that it is mandatory for your part to raise capital through loans. But real issue arises when some expansions and upgradations are required. It is advisable that external financing is an absolute must before you apply. Moreover, it is critical that you organize your finances at transitional stages but only after you make sure that you can’t do it yourself, either permanently or for some time. Equally important are the factors of risk, the cost of not financing and how well it contributes to specific and overall goals of the company.

FINANCING TYPES

Equity Financing: Equity financing requires selling off of your shares (mostly partially) in return for cash and giving away that portion of ownership and rights to profits. It is worth pointing that equity financing can be sought from private investors or venture capitalists. This brings about proper capitalization opening access to debt financing. Moreover, Equity finance doesn’t need to be returned like loans unless your partner wants to withdraw.

Debt Financing: Debt financing can be termed as the loan financing against some kind of guarantee of repayment. Fact remains that the guarantee can be collateral, a personal guarantee or a promise. It is worth noting that lenders restrict the use of debt finance to inventory, equipment or real estate. It’s your responsibility to properly structure the debt and the rule of thumb for doing so is giving long term debt for fixed asset loans and short term for working capital. The reason is that fixed assets leads to cash flow over their lifetimes and has the benefit of lower interest rates as opposed to working capital loans.

Sources of Finance:

You can choose finance sources depending on your circumstances and the amount required.

Family and Friends: In theory, small and short-term working capital requirements can be financed quickly through your own resources or through family and friends. The main advantage here is the absence of the interest component (mostly.) This process of raising finances is handy even in early stages of business. But the fact remains that you should be mindful, though, that disputes over money are the main reason that close relationships turn sour.

Related Articles


Affordable Business SEO Small
Small Business Management
Internet Home Business