Where can one get a capital for their startup and which of the variant is the most suitable is exactly got you?
The Source of Start-Up Capital for a Business Venture
In most cases, entrepreneurs may have good business ideas, but the most challenging thing may be the source of money to get the business going. Implementing a business plan and making the business operational depends on the availability of capital to acquire the necessary resources. If the finance is not sufficient, then the business can hardly get off the ground. Some of the factors to consider in determining the amount of capital include the size of business, the security required and the capital sources. Some of the sources of start-up capital include:
The personal sources
In most cases, one of the primary sources of capital for the business comes from the financial arrangement of the business founder. This may include the personal savings and other cash balances which have over time been accumulated.
The entrepreneurs usually invest the personal cash balances into start-up capital. Personal savings investment enables the contractor to have maximum control of the business. It also shows the commitment of the entrepreneur, thereby attracting outside investors. Majorly, people usually use the remortgaging as a means of obtaining the loan related capital.
Borrowing from the family and friends
This is another common way of raising money to start up business. Family members who are willing to support the business or are confident about the business idea can decide to contribute money for the company founder or provide their capital to the firm. This means usually provides a cheaper means of getting the money compared to the standard bank loans that may require a longer process. Additionally, the interest charge by the family and friends can also be relatively lower compared to the bank interests.
In starting up small businesses, the use of credit cards has in most cases be used. In such a case, the entrepreneur pays for the expenses which are business related on a monthly basis using the credit card. After a given agreed period for like 15 days or less, statement from the card is transmitted in the area of post. The business completes the remaining value before the set free period for the credit elapses. This saves the company a great deal since it can get about 30 to 45 days of the free credit period. It is, therefore, an effective way of starting the business.
The retained profits
This is another significant source of capital for a business venture, whether the business is small or large. It is usually the money that is generated from the firm whenever it is making profits. The retained profit is used to further expand the business by purchasing more stock or introducing a new stock of goods that initially did not exist.
The share capital, which is invested by the firm entrepreneur
The business founders may decide to invest in the stock capital of the corporation, founded to help in forming the capital. The entrepreneur, therefore, offers all the share capital of the enterprise and retaining 100 percent control over the firm.
This provides a long-term source of the capital where the bank provides the amount and also sets the terms including the interest to be paid, the amount of repayment and the period for which the loan is usually provided. Some of the security is often required which can be a personal guarantee given by the entrepreneur. The bank loan can be of little interest thereby being good investment capital sources. However, there is little flexibility in the acquiring and repayment of the loans.
Business angels are also among the types of the external investor in an entrepreneurship venture. They invest into companies that have higher growth prospects. Upon selling up their businesses, they get money to invest in the new businesses. Apart from the monetary contribution they make to the business, the business angels also avail themselves and provide their experience, skills, and expertise to the firm, thereby helping in the growth of the firm. Having the business angels for a starting business can be advantageous to the firm although the business owner must allow for the loss some aspects of control of the firm.
This is a type of share investment in which professional investors manage the funds. In most cases, however, the Venture Capital prefers businesses that are already established. For the micro VCs, they can similarly support the start-up businesses thereby being a source of initial capital.
The financial backing from the customers and the suppliers
In certain occasions, the suppliers may come in to contribute some capital to start or expand business in the case that the product you intend to deal in compliments the supplier. However, the challenge with such a source of capital is that the new business can be limited to cooperate with the supplier only and cannot easily be flexible to operate with other supplier’s competitor firms. The paybacks can take different forms apart from the monetary or interest forms. The other types may include advertisement and market search for new customers.
In conclusion, a new business idea requires consideration of the source of capital. However, exploring some of the sources of start-up capital such as friends and families can help obtain the money.
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