Finding the right funding for one’s company can be difficult. However, by learning a few fundamentals about one’s financing choices, one can cut down on the time it takes to find the financial partner and boost your chances of having the right financing for your business. Here are some important considerations to consider when determining if debt or equity funding is the right choice for you.
The first thing to consider among many other things is that how much money you require for your business. One can have an understanding of this by using a variety of methods. One can add up one’s start-up costs, such as leasing, supplies, shop fit-out, inventory, salaries, legal and accounting fees if one is starting a company. If one is buying an asset, one should get a copy of the contract that includes the purchase price.
Using cash flow predictions to find any shortfalls if one is investing for cash flow. One can easily do this with the cash flow template included in the CommBank financial plan template. One can guess how much money one needs to borrow by adding this figure to the cash they already have on hand. If it seems that one may need to borrow a greater sum to relieve financial stress. One should explore ways to save more money or, if possible, continue working your current job for extra income. Applying for federal government grants for new companies is another choice
Debt finance is where one borrows money and pays it back with interest for a set period. The following are the most common types: Bank loans, overdrafts, mortgages, Credit cards, equipment leasing, are all available options. The advantages associated with debt finance are that one does not have to respond to investors, one will have full control over one’s company and properties. In the case of debt finance, one is also not expected to share the company’s profits.
However, there are some considerations associated with Debt financing; one must know that without reliable financial reports or estimates, as well as a detailed business plan. New companies can find it difficult to obtain debt financing. One also needs to come up with enough money to cover one’s repayments, fines, and interest. Another point to consider is that if one uses an object as collateral to secure a loan, the item will be repossessed if one fails to make payments.
Equity financing entails putting one’s own or somebody else’s money into one’s business. The main difference between debt and equity financing is that with equity financing, the lender becomes a part-owner of the company he is investing in and shares in any profits it makes. The following are the primary sources of equity capital. Friends and family, people who invest their own money in start-up companies. And professional investors who invest money in start-up companies, known as venture capitalists. The advantage of equity finance is that there are no loans to pay off, and there are no payments to make.
However, there are some disadvantages associated with Equity Finance. The first problem is that one might have to give up some control of one’s company if one wants shared ownership. Investors can have a say in how the company is running in addition to sharing profits. The second problem is that accepting investment funds from friends or family may harm personal relationships.
Finding the right funding for one’s company can be difficult. However, if one already knows what kind of financing they need, where to find it, one can cut down on the time it takes to find a financial partner and improve one’s chances of getting the right financing for one’s company.