How To Finance Your Business
Being a dreamer is not a bad thing, and when it comes to fulfilling a dream of starting a business, there are hundreds of possibilities out there. Of course, the major problem a business faces – in both starting a business, and saving it from shutting down – is raising capital.
It is important for young entrepreneurs as well as other businessmen to know about the sources of finance they can look towards in times of need.
Bank overdrafts are short term sources of finance, the time period for which range from six months to a year. These usually cater to startups or small-sized businesses. In bank overdrafts, a bank provides an agreed amount of capital to a business in the form of a loan.
Bank overdrafts are considered to be the most fluid source of finance, meaning the business can change the amounts on a day-to-day basis depending on their needs. Businesses are even permitted to ‘overdraw’ from their accounts in the case of writing cheques or making payments which may exceed their current balance.
This is mostly classified as a medium-term source of finance, quite similar to the short term, as these range from one-to-three years. Hire purchase refers to the process in which an asset is sold to a company and that company pays fixed repayments over a certain time period. Hire purchase is also a form of credit since you can buy the asset after an agreed time period, instead of paying huge sums of money for it initially.
Long Term Loans
As the name suggests, long-term loans are taken from banks and do not have to be repaid until at least one year. This means that these loans go up to periods as long as ten years. For such loans, companies have to provide security or collateral mostly in the form of an asset if the company fails to repay the loan.
However, companies with fewer assets may find this source risky, since they are sometimes not granted long-term loans, or they may be granted on high-interest rates.
Venture capital is the instance in which rich businessmen or specialist organizations provide capital to aspiring entrepreneurs with a good business idea so that they can take the initial steps in converting their dreams into reality. The businesses receiving venture capital are usually ‘unquoted companies’ – i.e. these are not listed on the Stock Exchange, which means they may find it hard to raise capital from other sources, and so have to rely on other organizations to help them out.
Finance is a very important part of any kind of business. So now that you are aware of a few good financing sources, you can start looking for the best option that may help you raise sufficient capital for your business.