subject: Financing Your Dream Business - How To Raise The Capital Needed (1) [print this page] Financing Your Dream Business - How To Raise The Capital Needed (1)
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
1. The individual's capital or savings.
Every entrepreneur must be devoted to their own vision and must be ever ready to sacrifice personal enjoyment and invest some of their own resources into implementing
it. If you are not willing to invest your little, who then should invest in your business? The individual's capital could be acquired from savings, investments, pensions, an inheritance or the sale of an asset.
Merits
a. The individual's capital or savings, unlike loans, does not attract interest. The entrepreneur, therefore, has all the time and room to try-out his idea until it is transformed into a complete business model.
b. By putting in your own small resources, you are able to convince external stakeholders to invest in your business. This is because, by investing your life's savings, you are telling the external stakeholders that you are dedicated to your own vision and would be regimented in the day to day running of the business.
c. You are able to reinvest your outfit's profits at the beginning stage of your business for a period in order to facilitate the growth of the business.
Demerits
a. The growth of the business is very slow and limited.
b. The business does not get to profit from the austere inspection and monitoring by bank officials, which is helpful in configuring the business.
c. Depending on the type of business you in tend starting, at times your measly personal resources make up a very little drop in the pan.
In spite of all these demerits, starting with your personal resources, no matter how small and inconspicuous it may be, is very helpful.
2. Bank or term loans.
The entrepreneur can acquire business loans from banks, non-bank financial institutions and insurance companies. Business loans from these institutions are repayable between one to five years with interest. Usually, term loans are the most accepted form of funding for most businesses.
Merits
a. It is mandatory for the entrepreneur to improve his business management systems because, the unyielding approval processes of the banks make available checks and
balances for him to do so.
b. They are vital when the entrepreneur is investing in capital-demanding businesses like real estate, construction etc.
c. Business loans are indispensable at the expansion or development stage of the business where colossal addition of resources are needed to move activities forward.
Demerits
a. The entrepreneur does not get the needed grace period for the business to blast-off, since the loans are not always well thought-out with the entrepreneur's needs in mind.
b. Unwarranted pressure on the entrepreneur due to colossal interest payments could cripple the business.
c. Lack of personal discipline could cause the entrepreneur to redirect loans into personal luxuries.
3. Family and Friends.
Most entrepreneurs rely on family and friends for support since usually they do not have adequate resources of their own. For example, the founder of Microsoft, Bill Gates is believed to have been assisted with a $1,000 investment from his siblings at the beginning stage of his business. What a wonderful siblings he had!
Merits
a. Family members and friends who give-out some funds to support your business usually do so principally out of the craving to see you succeed. This, unlike loans from
the banks, gives the entrepreneur the needed grace period for the business to blast-off, as well as take away any unwarranted pressure on the entrepreneur due to colossal interest payments which could cripple the business.
b. Sometimes, the entrepreneur gets the funding under wobbly verbal agreements, just requiring them to give something back in the form of profits or part ownership in due course.
Demerits
a. Because agreements for receiving funds from family members and friends are usually not documented, these sometimes lead to dissents when the business grow and your helpers feel they deserve more from you.
b. Your family members and friends who lent you the money may interfere in the management of the business.
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