If there were only two reasons for a company to fail, they would constitute mediocre financing and mismanagement or planning. You can not insist on the importance of financing your business. Financing the company is not a unique activity as some might think. It is necessary whenever the need arises as during expansion, modernization, etc. At this point, you must understand the importance of extreme cautious and plan the use of capital. A bad decision here can haunt your life from your business.
Are you sure you want to raise external funds?
For start-ups, it is understandable that you need to collect capital through loans. But what about expansions and upgrades? Make sure external financing is an absolute must before applying. It is essential that you organize your finances at transient steps, but only after ensuring that you can not do it yourself, permanently or for a while. The risk criteria, the cost of non-financing and how they contribute to the specific and global objectives of society are also important.
Types of financing
Equity financing: The financing of shares involves selling your shares (mainly partially) in exchange for money and give this part of the property and the property of the profits. Equity financing can be sought from private investors or venture capital. This leads to the appropriate capitalization access to access to debt financing. Funding for equity does not need to be returned as loans unless your partner wants to retire.
Debt Funding: Debt Funding is loan financing against a kind of reimbursement guarantee. The warranty can be guaranteed, a personal warranty or a promise. Lenders limit the use of debt financing to inventory, equipment or real estate. You must structure the debt and the thumb forecasting rule, which gives long-term debt for fixed and short-term loans for working capital. The reason is that fixed assets generate cash flows over their lifetime and benefit from lower interest rates, as opposed to working capital loans.
You can choose sources of funding based on your circumstances and the required amount.
1. Family and Friends: Small and short-term working capital requirements can be funded quickly in your own resources or family and friends. The advantage is the absence of the interest component (mainly.) This method of fundraising is practical, even at the early stages of business. However, you should be aware that these disputes on money are the main reason why the close relationships turn to acidity.
2. Administration of American small businesses: This is the main source of debt financing. The SBA does not lend money directly but organizes and guarantees loans through various lenders and sources under its umbrella. Local governments, banks, private lenders, etc. Beginning of loans immediately to companies approved by the SBA. SBA loans are available for various commercial purposes and the lowest interest rates available.
3. Venture Capital: The increase in venture capital is organizing funding through the sale of shares whose value is equal to the financing you need. This essentially means selling some of the property rights and control. It is essential that an appropriate valuation of the value of your business is made before the agreement is made.
Financing a company should not be difficult as long as your credentials are established as a good manager, guarantees / assets, a convincing cash statement, a real need, a proven assessment, a good credit history and A robust plane. This should not just register your business to collapse but also allows it to grow and succeed.