How to Finance a Small Business
Confused by how to finance a small business? One key to a successful business start-up and expansion is your ability to obtain and secure appropriate financing.
Raising capital is the most basic of all business activities. But as many new entrepreneurs quickly discover, raising capital may not be easy; in fact, it can be a complex and frustrating process. However, if you are informed and have planned effectively, raising money for your business will not be a painful experience.
This guide focuses on ways a small business can raise money.
There are several sources to consider when looking for financing. It is important to explore all of your options before making a decision.
Personal savings: The primary source of capital for most new businesses comes from savings and other forms of personal resources. While credit cards are often used to finance business needs, there may be better options available, even for very small loans.
Friends and relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest free or at a low interest rate, which can be beneficial when getting started.
Banks: The most common source of funding, banks, will provide a loan if you can show that your business proposal is sound.
Venture capital firms: These firms help expanding companies grow in exchange for equity or partial ownership.
It is often said that small business people have a difficult time borrowing money. This is not necessarily true.
Banks make money by lending money. However, the inexperience of many small business owners in financial matters often prompts banks to deny loan requests.
Requesting a loan when you are not properly prepared sends a signal to your lender. That message is: "High Risk!"
To be successful in obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk.
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