Finance

How to finance a business

How to finance a business

One very big mistake people always make is jumping into conclusion on starting a business without any financial source or business plan. For a new business startup first thing must be like how to finance a business. Starting a new business can be very tiring and now to finance the business can be a little scary as you do not know how and where to get funds. Starting a new business in other to set a legacy for yourself and make a living can be tiring as you have to answer the question How, What and When. How the to make the business work out, what business to start with the capital at hand and when to start the business.

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Getting your business financed needs and require you to be diligent and have a great and excellent business plan. The most common way to finance a business is by collecting loan either from any financial institution or from friends and family. Getting all the factors of production together is also one crucial step to take in financing a business. There are some steps to take in getting finance for your business if the business is to be successful.

How to finance a business

How to finance a startup business

  • Creating an excellent business plan and think twice about how to finance a business. Make the objective of the business well detailed and simple to understand. It should be able to get the attention of any individual that want to provide financial help in financing the business. The business plan serves as a direction and map on how the business to be run and how it should look like in the next two to three years. The business plan comprises of many components such as aim of the business (everybody goes into business for the purpose of making profit, nobody does business in other to lose but the aim should be clearly stated if the business is to solve the financial crisis of the country or any problem.), the profit rate, the terms and conditions of the business if it should be financed with loan.
  • If the business has been in existence but needed to be finance, you can try out one of the two major financing structures or you can use the two. We have the debt financing and the equity financing.

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  1. In debt financing, you issue out debt and sell bonds to investors. The money got from the sales of bonds is used in financing the business but you must note that, the money which is the principal and interest rate which is referred to as coupon rate in debt financing must be returned at time due.
  2. The advantage of selling bonds out is that the investor does not gain anything from the business except the coupon rate and his money which he would collect back. The other type of the financing structure is the equity financing.
  3. In equity financing, the company sells its shares out to investors which are known as shareholders. Shareholders do not collect interest rate nor collect their money back unlike bondholders that collects the principal and the interest back either the business boom or not. In equity financing, the shareholders run the affair of the company together with the owner of the company. A shareholder does not get his money back or have any profit if the company does not increase in value or goes bankrupt.
  4. The shareholder suffers the risk and loss of the business together with the owner and also enjoys the profit depending on the rate of shares bought with the owner of the business. The profit received by a shareholder is called dividends. These awesome ideas will definitely give you best option about how to finance a business to success.

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Small business finance

If the business is new and yet to kick off, you can collect loan from any bank. Collecting loan from bank can be exhilarating but you should know that before any bank can issue loan to any one, the person must have collateral which can property. You must make sure the business will yield in no time to be able to pay the loan back in other to lose the business or any of you property as collateral to the bank.

  • If you want to borrow money, you should get from where their interest rate is low so that you will find it easy to get the interest paid back in time
  • Keep every record of the transaction on the business. Know the amount of money spent and amount of money coming in so that you will be able to calculate your profit.
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Harish Yadav

Finance and market analyst and chief writer on howtofinance. Passionate to read books and articles on marketing and accounting. Also edits other articles and publish them here.

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