Financing a Business

Financing a Business: Show Me the Money

Have you heard of a typical “rugs to reaches” stories? These are the types of stories of individuals who were once living in poverty up to the extent that they do not have anything to eat then one day wake up as millionaires or even billionaires. These true to life stories did not happen overnight. These “rich people” that we’re referring to suffered tremendous pain before reaching their status that they have today. All of these individuals are business men. There is rarely a “professional only” millionaire; not unless he is the best in his game or if he has a part time business.

Do you want to be a millionaire? Then the facts argue that you start your own business, this is the advice of Robert Kiyosaki (author of Rich dad, Poor dad) in one of his books.

In the past, most entrepreneurs utilize all of their savings in order to put up a business. Some of them would even sacrifice their own homes just to make their business successful. Our time today is different from the time yesterday, and you know that. Various ways have already existed in order to obtain financing for small business, and this article is all about it.

Ways to Finance your Business:
1.    Debt
2.    Grants
3.    Equity financing

Debt Financing
Debt financing is simply financing your debts. This type of small business lending is often done in banks. You would find your bank of your choice and file numerous papers such as the flow of cash, ability to turn numbers into cash and other collaterals. Cash flow refers to your ability to earn money and spend money while collateral means “equal damage” for example; failing to pay for a long time would give the bank the right to take some of your property depending in the money that you owe. Most of the banks are attracting new business clients, but in terms of lending money they have the tendency to be very strict.

The bad thing about these types of loans for small business is that you have to pay interest and there is personal collateral. Just imagine your favorite TV being taken away by the bank because you failed to pay: painful right?

The good thing about this type of business funding is that you keep your money. You don’t have to sell the shares.

FREE MONEY! Grants as a form of business funding is often hard to find since it is a very competitive market and a very strict one. These are similar to scholarship “grants” where free money is given to the very deserving and most intelligent student there is. Grants are similar to debt financing since you need to file huge amount of papers explaining how your business works and why they should give you free money. Most of the grants are given to businesses with the genre of electronics or drugs.

Equity Financing
This type of financing involves selling shares of your business. Let me explain. If I would sell 30% of my business profits then I would ask someone to pay me a sum of money. If I was successful in selling 30% of earnings then this would happen: Whenever I will earn 100$ from my business, the person whom I sold the share would automatically get 30$ while I keep the remaining 70$. Get it? This is what they refer to as equity financing.

There are numerous individual whom you could have this type of financing and they are: Family and friends, Public Investors and Angels.

Your family and friends are the easiest way to find individuals who would lend you money. They are easy to contact with and are very kind. However, just imagine to hanging out with a friend or having dinner with your in laws when your business suddenly collapsed.

Public investors would be identical to the idea of selling your business. These types of investors often lends you a huge amount of money in exchange for a huge amount of shares, sometimes their shares are even higher than the owner, while there are also some dramatic stories of individuals losing their business despite being successful. Be wise and aware of such actions especially if you are willing to share your business in public.

Angels serves as the middle line between your family and friends to public investors. These refer to investors who are likely to be sent by God. They are patient, they are suggestive and they are easy to talk to. However, these individuals are harder to find compared to the latter and it is most likely that you would often find demons rather than angels now days.

Do whatever type of financing you think will be important for your business. Before jumping in to such actions, it is recommended to talk first to a financial adviser or business owner PERSONALLY and ask their opinions of what they think about your plan. There are so many ups and downs when we are talking about financing a business. Mistakes whatsoever will always arise even if everything is being secured. There is no such thing as a perfect financing method, nor a perfect borrower. That is why it’s even possible to obtain small business loans with bad credit. Remember that there is an EXCELLENT method that we can use to receive business financing, and that excellent method varies among us business owners.

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