subject: Financing Your Dream Business - How To Raise The Capital Needed (2) [print this page] Financing Your Dream Business - How To Raise The Capital Needed (2)
One of the greatest challenges when starting a dream business is the raising capital needed for the business to hit the road. This is a great challenge to all entrepreneurs setting out because, they are incapable to acquire loans at the beginning stages. You cannot blame the banks much for two principal reasons. First of all, the beginning stage of every business is usually an uncertain period laden with risk. Secondly, the entrepreneur at the beginning stage lacks the experience, the discipline and essentially, the financial perspicacity to profitably run and repay a loan at that stage.
As a beginning entrepreneur, it is important to overcome this hurdle and let your dream materialize. George Bernard Shaw once said, "The people who make it in this world are the people who get up and look for the circumstances they want and, if they cannot find them, make them." Like George Shaw rightly said, it is the obligation of the entrepreneur to ascertain the options for raising capital to start his dream business and choose the best. There are some available capital sources. Most entrepreneurs coalesce two or more of them at beginning stage. In this article, I wish to tackle three of the sources of start-up capital, their merits and demerits
Venture Capital Fund.
This source of capital for starting a dream business is usually appropriate for entrepreneurs who have bright ideas of putting up innovative products and even have lucid models to show to all and sundry, but unfortunately, because they do not have the resources, assets and lack the experience required to start the business, banks are not ready and willing to give them loans. The venture capital fund is usually set up by the government, a group or an individual to finance new and mostly high-risk businesses.
Merits
1. It is totally dissimilar from the loan system and well thought-out to make right some of the short-comings identified with loans.
2. The venture capital fund primarily caters for specific projects or stage of a venture at a time, making it specific in nature. Simply put, you get the exact fund for the exact project.
3. Not only do you get finances from this set-up, but also the venture capital system has the people with the requisite expertise to assist in running your firm, usually if you the visioneer lacks the practical know-how in running the business.
Demerits
1. Because of the high-risk associated with the nature of the projects they help finance, their probable profits or interests tend to be high. What do you expect?
2. Sometimes, the venture capitalists are resolute on the business, therefore put into practice decisions which tend to smoothen the progress of their early exit from the business they assist, which may not be in the interest of the business in the long round.
Leasing.
Are you starting a business and lack the necessary tools needed to set the business into motion, because those tools,machines or equipments are too expensive to acquire? Then this type is for you! Leasing is a loan system where loan facilities are fixed with the securing of an exact equipment or machine. Basically, there are two types of leases. The operating lease and the finance lease.
The operating lease is where the lessor - the leasing company owns the equipment or machine all through, and the equipment or machine goes back to the owner after the lessee completes the lease. However, with the finance lease, the lending firm owns the equipments with the user all through the lease period and after payment of an outstanding amount, the lending firm hands the equipment over to the lessee.
Merits
1. The entrepreneur does not need to fret over how to acquire all the expensive equipments required for the commencement of his business when capital is needed for other stuffs. This, sort of bring a major relief to the entrepreneur.
2. Also, in the event of the project not working out as expected, the entrepreneur can "walk out" and the equipment will go back to the owner who can decide to put it up for sale. As simple as A,B,C,D.
Demerit
1. The major disadvantage is that, the entrepreneur bears the greater part of the cost of repair should the equipment breaks down when in use by the lessee or when it is in the possession of the entrepreneur.
Equity investors.
In the world of business, there are an incalculable number of people who are more than willing, and looking around for businesses showing potential signs of massively doing well to invest in. If the entrepreneur, therefore, is able to come up with a project with high financial potential, he is able to draw such people to purchase equity or be a major shareholder in the company right from the on-set.
Merits
1. This system enables the business to grow speedily enabling the entrepreneur to dodge the stress and anxiety that comes with repayment of loans.
Demerits
1. The entrepreneur is robbed of his total or full control of his business.
2. There is usually too much interference by the equity-holders.
For more on how to finance your dream business with ease, please CLICK HERE.
