For starting a business, capital is the most essential element. You could have the premises, the market, the motivating, but without capital, you can’t start your business. Capital simply refers to the money or funds necessary to finance the business. It varies with the type and size of the business.
Finding and managing a business could prove a hard nut to crack. It requires the right approach and appropriate handling. Most young businesses will usually tend to underestimate the startup funding, hence, end up under capitalizing. The consequences end up being dire. It thus proves the essence of identifying the exact or approximate money required to initiate and maintain your business.
Know exactly how much money you currently have for the business and other assets in your possession, which can help in funding. You should find some alternates to start with minimum startup funding or find out if there are willing investors; these could be relatives, friends, or random business-people. It is of equal importance to be aware of your credit score because you may need to acquire funding from a financial institution, such as a bank. Business loans are good options but maximum startups avoids it find ideas to minimize small business loans.
Obviously, the economy is improving and business owners are optimistic. Small business owners are saying that they will be hiring people expanding facilities, even investing additional funding in their business.
How you startup your business could play an important role in determine the direction your business takes; it may move upwards or towards the downside. Here are ways which could acquire and manage your startup funding.
- Personal Savings
The largest portion of your business startup funding will most likely come from your personal savings. Personal savings may be money saved in your bank accounts or assets inherited. At least 25- 50% of the funding should be from your savings. It will show that you are liable for some of the risks involved and that you are ready to play the major role in gearing your business forward. If you are considering taking a loan, these savings and assets will act as security.
Your personal investment will determine your position in the list of share holders and also the leverage. Banks will also loan you according to the equity in your business. Using your own savings may be putting your own financial health on the line but in business, it is those who take risk which have the highest chance of thriving. Moreover, if you need to attract investors, you must show them, your input in your own business.
- Equity investment
This is whereby you are willing to share ownership of your business. Willing investors will provide capital but in exchange for shares. These shares depend on the input of the investor but you have to agree upon them. Before embracing this option, keep in mind exactly how much ownership you are willing to lose; if you give up 51% of the shares then you will no longer have control of the business.
In equity investment, the funds could be from individuals, other companies, or companies within your business which you own. Once they acquire shares, they become stockholders in your company. The investors won’t require collateral for the amount they put in; rather, the dividends they receive are their security. However accepting investment does not just entail accepting money; there are some laws you must have in consideration.
- Government grant
- Many people looking to start a business, especially a large one, will often seek startup funding from government grants. Specifically because they are free; you don’t have to pay back. However, you will be most likely to acquire the grant if you are a youth or women’s group. Government grants are not the kind of financing you can rely on because there are usually only few of them. There is however government loans which you could borrow to invest in your business. Sometime, the application process may be tiring and hence, this type of funding is not very common.
- Personal loans
This is quite a common option for business startup funding. Sometimes a business may be very demanding hence, needs a lot of capital. In this case, you could consult your local financial institution such as bank to provide you with a business loan. There are two types of loans:1. Long-term loansThese are loans used for huge commitments or fixed assets. For a business they could be used to acquire machinery, equipment or stock. They are usually used for a period of one year or more. Security may be business assets, personal assets, guarantors or funds from stakeholders.2. Short-term goalsThey are usually used to fund daily expenses or to handle emergencies. These loans may come at a higher interest rate than long-term loans and are used for a year or less.
Whether you acquire the loan or not and the amount you will get depends on several factors. The first is the ability to repay the loan measured from the predicted cash flow of your business. The value of the security you provided in terms of collateral determines the size of the loan. As mentioned earlier, banks will also look at your personal investment in the business. The element which rules out many people is their credit history and credit score. If you have a low credit score your chances of getting the loan are slim.
- Credit cards
- This method will require that you have great credit. It will help you get started in a short time. However, using credit cards to finance your business startup funding is a risky affair. The initial stages of the businesses might generate little revenue which will not enable you pay the due credit on time. Credit cards could equally lead to a successful startup.
- Acquaintances, friends and family
- Sometimes, family and friends could ease the pressure of startup funding significantly. It might take some convincing but you have to show them the potential of the business; if possible, even demonstrate it. You should have already prepared the business plan which will clearly point out what the business entails. If they are convinced they could lend you substantial amounts, it will cater for all your expenses.
Above mentioned finance options are available for start a business, you should choice right finance option for your business depend upon you business strategy and plan. You may have to manage your fund appropriately to achieve your business goal and lead a successful business venture.