Business
Start
source by: businesstown.com
STEP 3 Financing
With your business plan in hand, you are ready to go find yourself some
capital. Most small businesses have three options for financing: friends & family,
investors or bank loans. Each of these options has different considerations
for the business.
Investors
and even friends & family usually want
ownership and control of their portion of the business. Bank loans
burden the business with an additional expense of the loan payment,
which can erode the business profits.
Friends and Relatives
You, like most of us, are probably reluctant to ask friends and relatives
for money. But a lot of people do, at one stage or another, when they
are running their own businesses. If you are really serious about starting
and/or staying in business, swallow your pride and go beg for those
funds.
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Venture Capital
Despite all of the attention venture capital firms get in the business
press, they actually finance very few businesses. The better venture
capital firms are deluged with proposals from budding entrepreneurs.
But most of these entrepreneurial proposals are inappropriate to the
goals of venture capitalists.
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Banks
Banks are the primary financing vehicle, other than owner's savings,
for small businesses.
Banks like to use hard assets such as buildings, motor vehicles, or
equipment as collateral against loans.
They will loan against receivables
and inventory, but, especially in the case of smaller businesses, tend
to heavily discount the protection these assets offer. They are afraid
the inventory and receivables will be converted to cash in order to cover
operating losses if the business experiences any financial difficulties.
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