Are you looking to get your small business financed? Or are you having difficulties in securing the optimum financing for your business idea?
Through this article, we will meticulously present the detailed aspects of small business financing.
EQUITY AND DEBT FINANCING
Even though some small businesses are usually financed by the owners themselves, and sometimes some small businesses need investors. Debt and Equity finance, these are the two basic types of financing you can get for your Small Business Financing.
The money that you need to borrow, usually from the banks or from your relatives or friends, is mostly called Debt financing.
And in the Equity financing, for your operational business needs, the money you put into financing in your business, whether you get from the private investor such as your relative or family or by public investors means the shareholders of your company.
WHAT IS THE KEY DIFFERENCE BETWEEN EQUITY AND DEBT FINANCING?
- Equity is a fund owned by the owners themselves like issuing shares to individuals, and you can keep equity for an extended period, but a Debt is a fund borrowed by borrowers, and you need to pay it off after a particular time, and it can be kept for limited period.
- Shares and stocks of a company are known as Equity, but in Debt, it is in the form of loans, bonds, and mortgages. Equity is always unsecured, but a Debt can be secured. A Debt holder basically is known as Creditors, but Equity holders are known as the company’s owner.
- The return rate of Equity is not fixed, but in Debt, you have to return it regularly, and it has a fixed rate.
COMMON SOURCES TO GET YOUR SME FUNDED
If you dive deep enough into the business world, you will find that there are many sources from where you can get your business funded. If your business idea has enough potential that it can add some value to a considerable consumer base, then you will find many people to be interested in adding in their investments. After you have ensured that your business idea is profitable, you can hop onto getting it financed. Now, once you start with the exploration, you will see examples of people before you who have started their businesses. You will find that they used a combinatorial approach towards getting their funding. They have used a mix of sources to get the money needed for their business development.
Following are some of the familiar sources which can be taken into consideration when you want your small business to be financed:
1. Equity financing is also known as Self-financing
2. Friends and Family
3. Credit Line
4. Interested Investors
5. Debt financing is also known as Bank loan for businesses
6. A loan from another company or a government-sponsored organization
7. Government-sponsored Business programs for Start-Ups
8. Government Grant Programs
Do take note that self-financing doesn’t include your credit cards. No matter what, you should never rely on your credit cards to fund your start-up. It is always a prudent approach to wait before starting your business. Wait for as long as you have the needed funds; you will find that the wait was better than getting yourself into crippling debt and disorienting your business finances, not to mention the plummeting credit rating you would have in your financial profile.
As for small business loans, there are always more options than just reaching out to traditional banks and credit unions. You can look towards other lenders. Approach a private lender as a source for your small business financing.
In your exploration, we would urge you to find out about angel investors. You can make these angel investors become interested in financing your small businesses provided that they forecast a substantial return from your company.
Many individuals begin their small businesses consider that the government grant will provide the funds they want for their forming their businesses and these grants are called “Free Money,” but small business government grants are not a feasible choice to form your small business in Canada, because nothing in the world is truly free, they are filled with warnings that how and where you should spend your money. And grants are usually obtainable once in a year.
A business line of credit provides the scope that a standard business loan doesn’t. You can lend up to a definite limit of $100,000 in business line of credit, and then you need pay the interest only on the percentage of money that you lend. On condition that you don’t go beyond the limit of your credit, you can take and refund cash as you wish. A line of credit is like you use your credit cards. Business lines of credit with lesser credit confines are usually unsecured, and it means surety such as your real estate or record is not necessary.
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