Questions to ask about startup financing
Many new business owners think that all they need for their business is a great product or service. However, the reality is that you will need some money to get your business up and running. How much money you will need will depend on what type of business that you are going to start. Savvy prospective business owners will take the time to learn all they can about startup business financing in order to make the best financial decisions for their business. It can be helpful to ask yourself the following pertinent questions in order to determine where you will get your business financing and how much you will need. Here are some questions to ask about startup financing-
• Where can I get business startup financing? There are many different places that a prospective business owner can obtain startup financing. One of the most difficult ways to get startup financing is through a traditional lender. This makes it even more important that you consider all the places that you could get working capital for your business. You should first consider your own resources and then approach family and friends for an investment or a business loan. You can also use credit cards (though the interest rate will be much higher), or consider attracting an angel investor to your business.
• What kind of financing will work best for my business? There are basically two different kinds of business financing. The most widely used is debt financing. This is where the business owner will borrow money either through private lenders (family and friends), or through a traditional lender. This money comes in the form of a business loan that will need to be repaid regardless of whether the business is successful or not. The other kind of business financing is known as equity financing. This is where the business owner will give up a percentage of his or her business in order to receive investment capital. In return for receiving this money the business owners will pay a specific return. The investment money that is placed in the business does not have to be repaid should the business fail.
• What will I need to pay for? Every prospective business owner will need to determine exactly how much money they will need to start their business. You will need to do an in-depth analysis of exactly what your business will cost to start up. Keep in mind that any lender or investor will want to see that you have done the research necessary to put together a cost analysis. You will need to have an amount for inventory, marketing, advertising, physical space, legal and insurance services, and anything else that you will need to get your business up and running.
• What are the considerations for the financing that I obtain? You will also need to make a number of determinations when it comes to the type of financing that you use to start your business. Knowing the answer to these questions will help you make the right decision in the type of financing that you choose to start your business with. Some of these considerations are-
1. Will you need short or long term business financing?
2. How long will it take you to repay the business loan or give your investors a return?
3. Exactly how will you use the financing?
4. Do you need all of the financing right now?
5. How much personal risk are you willing to assume when it comes to offering collateral?
6. Will you be able to use the financing to purchase a tangible asset for the business?
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