Financing a business is the major factor in any business. Whether you are lucky enough to be able to fund it from savings, using personal finance to get started on a small scale (or if you are looking for banks, venture capitalists, business angels and loans for SME’s or Corporations. Finding The Money You Need. Before you choose an option, it is important to explore all of the options before you make an educated choice.

Personal savings:

The primary source of capital for most new businesses comes from savings and other forms of personal resources. While credit cards are often used to finance business needs, there may be better options available, even for very small loans – Look at the APR – see how much you are repaying (the best option of all is 0% interest!).

Friends and relatives:

Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest free or at a low interest rate, which can be beneficial when getting started, look to offer an incentive to reward when the business is established.

Banks:

The most common source of funding, banks , will provide a loan if you can show that your business proposal is sound and you have done your homework. Banks make money by lending money. However, the inexperience of many small business owners in financial matters often prompts banks to deny loan requests. To be successful in obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, when you need it, why and how you intend to repay it. You must be able to convince your lender that you are a good credit risk and that will mean having a good credit score. Credit scores judge you on facts – your age, name, location, credit and many other factors including years at the location, trading terms (for business finance) in order to establish the risk element.

Venture capital/Business Angels firms:

These firms help very high potential companies grow in exchange for equity or partial ownership. National or International businesses are of interest to them usually with higher risk strategys and rewards.

Cashflow

The main key to any business is the funding and cashflow. Whichever category you fall within, you will still need working capital to get started. Many businesses have dissolved due to poor cashflow, since although on paper a business is wealthy, it has no cash readily available to pay the debtors. It needs to be cash rich from sales in order to pay suppliers on time, to keep a healthy circulation of money/capital in and out of the bank account & stocks/supplies to grow the business.

When projecting cashflow and sales figures, always be conservative in your estimates – optimism is great in business however in this field, always air on the side of caution and allow for unforeseen delays.. Not all of your debtors will pay in the timeframe you stipulate on orders, therefore having cash in the bank account to allow for this will stop the creditors from holding back future credit..

Overview

Each of the financing methods provide positive and negative aspects. For example, funding from your own source gains you outright control over the venture, however you equally carry the brunt of the risk… Whereas using external financing methods such as banks or the venture capitalists may result in handing over some control of the business as well as a portion of the assets and profits – equally the repayment costs can vary enormously from banks on an upward scale to the more expensive financing of the busines angels and venture capitalists (who require increased rewards since they take risks on businesses that other financiers will not touch).. all these aspects require careful consideration before you choose which option is best for you.