Financing A Start Up Business

Article Written By: emileydavid@gmail.com

On starting a business, the first thing come in mind is how much money is required to set up an enterprise. Basically there are two types for financing a business, one is Debt financing and other is Equity financing.

Debt financing is one in which one can borrow money and agree to pay it back in a particular time frame at a set interest rate. Bank loans are what most people typically think about debt financing.

Equity financing is the thing when you sell partial ownership of your company in exchange for cash. The investors assume all of the risk if the company fails or lose all of the money.

While exploring for start up business loans, there are several factors to consider.

• Check whether your needs are short-term or long-term. Also how quickly will you be able to pay back the loan or provide return on their investment?

• Is the money you are funding for operating expenses or for capital expenditures that will become assets, such as equipment or real estate?

• Do you require all the money now or in smaller pieces over several months?

• Are you willing to assume all the risk if your company doesn't get successful or do you want someone to share the risk?

Well there are so many options available for start up business loans.

- You can ask to family or friends; they are still the best source for both loans and equity deals. They are typically less stringent regarding your credit and their expected ROI.

- Credit cards are a great tool for cash flow management; assume that you do not use it for long-term financing. Keep one or two cards with no balance on it and pay it off every month to give yourself a 30 to 60 day float with no interest and the low introductory rates on some cards make them some of the cheapest money around. If it is managed well, they're extremely effective but if managed poorly then they are extremely expensive.

- Bank loans come in all shapes and sizes, from micro loans of a few hundred dollars, typically offered by local community banks to six-figure loans by major national banks. These are much easier to obtain when backed by assets like home equity or an IRA or third-party guarantors, for e.g., government-sponsored SBA loans or a cosigner. If you obtain a line of credit rather than a fixed-amount loan, then you don't start paying interest until you actually spend the money.

- Leasing is the better way to go if you need items such as equipment, vehicles, or even computers. Your supplier will help you in exploring this.

- Private lending represents a viable alternative when the bank says "no.” These lenders are looking for the same information and will conduct similar due diligence as the banks, but they typically specialize in the industry and are more willing to take on higher-risk loans if they see any potential.

About the Author

Emiley David - Firstusacapital for more information about start up business loans or equipment leasing companies.

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This Article Has Been Published on Thu, 23 Dec 2010 and Read 126 Times

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