There are many options available for
entrepreneurs who are looking for business capital. While it may be one
of the most stressful things a new business owner may encounter, it may not be as
bad as initially thought. It is important to consider all
funding alternatives. It is also equally necessary to weigh the pros and
cons of each option in order to make a knowledgeable and well-informed decision.
Equity financing
One preference that some
entrepreneurs may consider is equity financing. In this form of funding,
the new business owner will obtain their desired business capital in exchange for
equity ownership stake in a company. Institutional investors, angel investors, and
venture capitalists are all involved in such
funding for business startups. To qualify, the new business owner must present
a great business idea, a comprehensive business plan, and have good standing credit,
amongst other requirements. While the criteria may limit the pool of prospective
applicants, the most important aspect is that the entrepreneurâs
business idea(s) show promise of a lucrative return on investment.
While some people tend to shy away from this form of “raising
business capital because they do not want to be tied to other partners and/or
share any profits that the new business will make with others, it is definitely
a funding option to consider.
Debt financing
Another way to raise capital
for a new business is though debt financing. In this form of funding, the new business
owner must first qualify for a loan and promise to repay the amount through accrued
interest. In addition, debt financing can also take place when a new business owner
agrees to sell bonds, bills, and other financial instruments to individual or institutional investors. One
thing that makes debt financing attractive is that business owners do not have to
forfeit any ownership interests in the business, a very important reason why some
tend to avoid equity-type financing. In addition, interest on the loan is deductible
and financing costs are fixed.
As with equity financing, having good credit and the prospect of large company returns
is a must. This will play a crucial role in showing lenders that the borrower has
the intent of paying back all owed debt and that the new company will have a desired
cash flow to make financing payments.
Conclusion
Entrepreneurs should not get discouraged when
looking for funding for their new businesses because there is probably a
funding option out there that is compatible with their needs and unique situation.
One type of funding option to consider is equity financing in which money is given
by angel investors or venture capitalists in return for ownership equity in the
company. For those who do not wish to share ownership in their company, one may
consider debt financing, in which money is given in exchange for bonds, bills, other
financial tools, or repayment with interest. With these two options available, it
is possible that one can successfully fund their business so that their
business ideas become a reality.
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