Do you have plans to set up a new business or to expand your already existing business and your aren’t sure how you will get the necessary funding. Determining the best long term sources of finance for your business can prove to be quite a bit challenging especially to entrepreneurs who are planning to set up a new business nevertheless there are several sources of capital that can provide various individuals or groups with the required funds. They are listed as follows:
1.) Personal cash – This refers to the money owned by you(cash at hand or money saved in the bank). Perhaps,this is the best source of business finance since you already own the cash. You don’t need any form of approval or paperwork hence the provision of fast and easy cash to invest with.
2.) Personal credit-If your financial needs are within a reasonable amount, personal credit can be a good source. Approval is easy if you have a good credit record.
3.) Personal loans-Family and Friends can provide you the loans though there is a risk of you not paying them back hence having a suicidal effect on your personal relationship with them. Be best to pay them back on the said date so that they can loan you more when the need arises.
4.) Unsecured loans-Provided by many banks and several credit unions. The bank doesn’t usually ask for collateral for smaller amounts(except in a few cases), so the interest rates might be probably higher than the a credit card or secured loan.
5.) Secured loan -This requires automotive, collateral mortgages etc. If you don’t make the payments within the agreed period, the lender can legally seize the property promised as collateral. This loans are much larger than the unsecured ones.
6.) Bonds-Instead of asking a bank for a loan the entrepreneur asks individuals or other companies to loan him money directly. Bond purchasers give money directly to the business which is then paid back at an agreed upon rate for a certain period of time. When the bond matures the business must give back the original loan amount in addition to the payments already made. Since the legal and regulatory process for the bond market can be complicated, this is typically conducted through an investment banker.
7.) Receivable Financing-This is a special kind of secured lending unique to business receivables. The collateral for the loan is the control over the business receivables. Since the bank controls the receivables, they can ensure their loan is paid before anything else.
8.) Angel capital-An angel is an individual(usually a businessman), private investor with excess wealth/money that he/she would like to invest in a private business or startup($ 10000-1 M) in exchange for a certain % of the business.
9.) Venture capital-These are extremely wealthy investors. They are able to provide large sums of capital tens or hundreds miilions or billions dollars in a single investment. V Cs usually require large amounts of control in exchange for large amounts of capital meaning that they can have seats on the company’s board of directors if they so desire(you wouldn’t blame them now, would you?).
10.) Public stock offering-This involves an individual selling partial ownership of the company to investors on the open market. This is usually done through investment banks.An initial public offering (IPO) is simply the first public stock offering a company offers on the open market.
Sourcing funds from outside has proven to be very useful when it comes to getting business funds but be cautious of giving up the control over your business operations. Enjoyed reading our Long Term Sources of Finance? Don’t forget to like,share and subscribe!