What You Need to Know About Financing

No matter what type of business you have, you need to have financing for the business to start it or to make it run. Financing a business can sometimes be one of the most stressful times you will go through as you are pleading with banks to give you money and you are showing them why your company is worthy of a loan. The type of business you are running will have an impact on financing the business and the way in which you approach lenders to get the funding you need to start your company.

Initially you will need to get loans to start your business. As you may already be aware, it takes money to earn money and without this initial investment you do not have a large chance of getting your customers to listen and buy your products or services. You will need a large amount of money at risk as this is needed to buy the inventory items and other things to start your business. Once you become profitable you can start paying back the money that you owe. Usually a startup loan will give you money for about the first 6 months of operation and then it is up to you to bring in the money from here on out. Smart financial management will allow you to dip into your own cash reserves and other things to get the money you need to expand the business and to pay for other needs like payroll.

Poor capital management along with inadequate business practices will cause most small businesses to fail within the first year or so of operation. This is why you do need to spend a lot of time raising capital and focusing efforts on balancing your books.

Do you have personal savings or something you can invest into the company? If you want to start the company soon you may try taking your money and investing it into a money market account for a time so it can earn more money in interest and then you can pay it to lenders when you start the business. Investing your own money will show lenders how invested you are and they will see you as a lower risk. However even with $20,000 of your own money you will still need outside help to get your business started. You will need to look at all of your options when funding your business. Here are some that can help you out:
- Bank loans
- Leasing equipment
- Factoring
- Credit Cards
- Investors

You will need to give up some control of the company or you will be required to make monthly payment arrangements with the various types of financing that you choose t go after. If you don't want to give up control, finding a private investor is not the best way to go about starting your business.

Most people will turn to a bank right away. There are pros and cons to working with a bank when you are financing your business. A bank will fund you but they usually have higher repayment obligations. They also rarely offer you the flexibility of other financing options. You usually have a higher interest rate to pay off and there can be fees if you try to pay off the loan early. Most bank loans ask for some type of security and they usually want something big like your equipment or even your home. Putting personal assets at risk for the business can literally destroy your personal situation and it is not the recommended way to go about starting a business.