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Obtaining Finance To Start a Small Business

One of the challenges most people face is lack of finances to either start their business or expand when demand exceeds the supply. However, a lot of people are quick to obtain a loan from banks and other lenders without first understanding how that money could affect their cash flow and other tax obligations.

Before one starts to source for finance, it’s important to first determine how much money will be needed. When starting a business, one needs to have an idea of how much capital will be required to start, how much will keep the business running up until profit is generated and how much will go into wages and salaries. Having all these figures in mind will better position one to know where to source for funds.

The other critical thing one should carefully consider before sourcing funds is a business plan. A lot of people go into business without a plan in mind and on paper. This is why most businesses in Australia fail in their first year. One needs to have a sound business plan that highlights the business opportunity, marketing plan, financial projections and growth planning. When going to obtain finance from a lender, they will ask you for a detailed copy of a business plan. A poorly drafted plan not only results in the financier declining any request for money, but it also shows that the business has no time to provide timely and accurate reports to meet the loan requirements. A well-written plan will get any financier to consider new funding.

The time one needs to repay the loan is another essential factor that shouldn’t be ignored. Running a business on debt is not easy. One needs to know if the business will have started making profits to allow for loan repayments.

With that said, there are mainly two type of finance available mainly equity and debt finance. Equity is where one invests their own money or money from other investors on exchange of a partial ownership in the company. Debt finance on the other hand is money borrowed from external lenders such as the banks.

Equity financing has some advantages in that its less risky compared to getting a loan as one doesn’t need to pay back right away. The stakeholders can provide one with skills and connections to run and grow the business. On the downside, the investor will want a part of the business and will have a right to make decisions in regards to the business. Finding the right investor who is willing to put in the time and effort is also difficult.

These are some of the ways one can finance a business, carefully weigh the options and decide which form of financing will work the best.