Business Funding

Due to unexpected events each business goes through tough times and thus the need for additional capital, this might be brought by a need to expand. It is good to know where to source for funds when need arise.

During the life of most any business, the owner will need to seek out cash to help with its growth or to keep it going through a rough patch. So, planning how to fund a business is hardly a trivial or brief topic.

However, we can provide an overview we hope will help start you thinking about your business’ options.

First, there are two ways to externally fund a business: debt and equity. When debt is used, the investor receives a note for his or her cash. The note spells out the terms of repayment, including timing and interest. The benefit of using debt is that you retain ownership of your company. The downside is that you have an obligation to repay. If you fail to meet your commitment, the lender, under certain circumstances, can force the company into liquidation.

Then there’s equity. An owner who uses equity to fund a business turns over an ownership stake to an investor in return for the latter’s cash. The benefit is that there is no obligation to repay the investor. The downside is the owner has to give up a part of the ownership of his or her business. This can entail losing some control over the company.

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Many businesses fail due to the inability to get financial support when need arises. Lack of enough cash flow in the business means all the services and products will not be delivered at the required time and standards. It is the duty for each businessman to ensure they meat the necessary requirements to access financial help at all times.

It takes money to make money. That is the plain and simple truth in business. A shortfall of capital is one of the most commonly cited reasons why a company is unable to expand business and succeed. The prospect of getting financing for a start-up even in a growing economy is very difficult due to the fact that business owners lack operating experience and solid credit history.

America’s credit crunch environment is making it tougher than ever for entrepreneurs to raise money to start or grow their businesses, particularly minority-owned firms. A study released by the Minority Business Development Agency found that minority-owned firms are less likely to receive loans than non-minority-owned firms, especially businesses with gross receipts less than $500,000. The tightening of lending standards on traditional loans means minority businesses have to become more vigilant about their funding sources.

Today, only 59 percent of small businesses are able to obtain adequate financing, reports the National Small Business Association (NSBA). That number has steadily decreased in the last five years. Banks don’t finance dreams, says Todd McCracken, president of NSBA. They finance businesses that are likely to be successful. Your company has to have a good financial track record and a solid business plan.

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